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US Dollar May Extend Gains on Hawkish Fed Commentary

US Dollar May Extend Gains on Hawkish Fed Commentary

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Yen gains, commodity-bloc FX drops amid risk aversion in Asian trade
  • Australian Dollar underperforms after disappointing labor-market data
  • US Dollar may extend advance as Fed-speak boosts June rate hike bets

The anti-risk Japanese Yen outperformed while sentiment-linked commodity bloc currencies faced selling pressure as risk aversion swept financial markets in Asian trading hours. The dour mood appeared to reflect follow-on momentum after a drop Wall Street triggered by hawkish rhetoric within minutes from April’s FOMC meeting (as expected). The Australian Dollar suffered outsized losses in the wake of disappointing labor-market figures.

Looking ahead, a lull in high-profile event risk offers markets space for consolidation as investors digest yesterday’s volatility surge. Another round of Fed-speak may break the quiet however as Fed policy speculation heats up anew. Comments from Fed Vice Chair Stanley Fischer and Bill Dudley, the President of the central bank’s New York branch, are due to cross the wires.

Fischer and Dudley represent the central core of the rate-setting FOMC committee, suggesting their views are likely to match the majority consensus. If their tone matches the hawkish lean on display in the Minutes document, the US Dollar is likely to continue higher and another round of risk aversion may strike the broader markets. As it stands, the priced-in probability of a rate increase in June has surged to 34 percent from just 4 percent at the start of the week.

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Asia Session

GMTCCYEVENTACTEXPPREV
22:00NZDANZ Job Advertisements (MoM) (APR)1.7%-3.1%
23:50JPYHousing Loans (YoY) (1Q)1.9%-2.2%
23:50JPYMachine Orders (MoM) (MAR)5.5%-2.0%-9.2%
23:50JPYMachine Orders (YoY) (MAR)3.2%0.8%-0.7%
01:00NZDANZ Consumer Confidence Index (MAY)116.2-120.0
01:00NZDANZ Consumer Confidence (MoM) (MAY)-3.2%-1.7%
01:30AUDEmployment Change (APR)-10.8k12.0k25.7k
01:30AUDUnemployment Rate (APR)5.7%5.8%5.7%
01:30AUDFull Time Employment Change (APR)-9.3k--10.0k
01:30AUDPart Time Employment Change (APR)20.2k-35.7k
01:30AUDParticipation Rate (APR)64.864.9%64.9%
01:30AUDRBA FX Transactions Government (APR)-991m--978m
01:30AUDRBA FX Transactions Market (APR)946m-954m
01:30AUDRBA FX Transactions Other (APR)68m-44m
01:45CNYMNI Business Indicator (MAY)50.050.5
04:30JPYAll Industry Activity Index (MoM) (MAR)-0.7%-1.2%
06:00JPYMachine Tool Orders (YoY) (APR F) ---26.4%

European Session

GMTCCYEVENTEXPPREVIMPACT
--G7 FinMins, Central Bank Governors Meet--Medium
08:00EURECB Current Account SA (MAR)-19.0bLow
08:00EURCurrent Account NSA (MAR)-11.1bLow
08:30GBPRetail Sales Ex Auto Fuel (MoM) (APR)0.6%-1.6%Medium
08:30GBPRetail Sales Ex Auto Fuel (YoY) (APR)2.0%1.8%Medium
08:30GBPRetail Sales Inc Auto Fuel (MoM) (APR)0.6%-1.3%Medium
08:30GBPRetail Sales Inc Auto Fuel (YoY) (APR)2.5%2.7%Medium
09:00EUREurozone Construction Output (MoM) (MAR)--1.1%Low
09:00EUREurozone Construction Output (YoY) (MAR)-2.5%Low
11:30EURECB Account of April Policy Meeting --Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.10451.11471.11811.12491.12831.13511.1453
GBP/USD1.40841.43151.44571.45461.46881.47771.5008

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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