Forex Institutional Research: ING FX Daily
Key quotes from the ING FX report:
We expect USD to stabilise this week. In our view, the bulk of dovish re-pricing is likely behind us following Chair Yellen’s speech last week. Indeed, the market is currently pricing in only 62% probability of one 25bp Fed funds rate hike by the end of the year while scope for US short end rates to move meaningfully lower is very limited from here (the uptick in US March average early earnings on Fri supports the notion of limited downside to US rates from here). However, USD stability, rather than outright strength, is still good news from for EM FX. As long as the market’s pricing of the Fed funds rate path remains benign, currencies with attractive risk adjusted carry (such as TRY) should do well. For the week ahead, the focus is primarily on the US ISM non-manufacturing (Tue) and FOMC Minutes (Wed). The expected uptick in ISM should help the USD stability, yet the market will remain very cautious ahead of the FOMC Minutes.
The focus is on the ECB’s Praet speech in Rome today. Following the ECB March meeting (where President Draghi indicated that the Governing Council was not looking to cut rates further), Peter Praet was the first among ECB GC members to signal that interest rates have not reached the lower bound and could be cut further should it be necessary. While a similar dovish message may be reiterated today, this should not come as a surprise, meaning that its effect on EUR should be limited. EUR/USD is unlikely to move below 1.1330 todday.
USD/JPY continues to move towards the 111.00 level, but this should prove to be a strong support today given the lack of market moving data from both Japan and the US. Today’s market broader sentiment (Asian stocks were mixed and so should the European and US trading sessions, as suggested by futures pricing) is unlikely be enough for this support to be broken.
Overnight, AUD pared back some of last week’s gains, being the worst performing G10 currency today. The focus turns to the RBA meeting tomorrow. We expect the RBA to keep the interest rate unchanged. We also note that the bar is high for any explicit references to the AUD strength in the statement given recent criticism from the US Treasury. Hence, there is scope for a limited AUD rebound tomorrow
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