The Forex Week In Review
The main focus for Forex markets this week was the March FOMC meeting. Although the Fed were widely expected to keep rates on hold, the Dovish tone of the meeting took many by surprise. The Fed downgraded their “dot-plot” forecast which now indicates that the central bank may hike rate twice this year, down 50% from its Dec projection of four hikes, underscoring increasing concern for global and domestic risks. Economic projection for GDP growth was revised lower to reflect prevailing downside pressure. The economy is expected to expand 2.2% in 2016 (previous: 2.4%) and inflation to rise 1.2% (previous: 1.6%). In addition, Fed Chair Yellen said that the central bank is not considering negative interest rates. USD slumped, returning all early gains on better than expected US data after the FOMC lowered markets’ expectations for future hikes.
Equity and commodity markets were bolstered by the news, moving sharply higher as the US Dollar sunk, driving the commodity FX bloc back up through recent highs after a retracement over the early part of the week.
USD USD was driven lower in the wake of a Dovish FOMC with the Fed downgraded their forecast for the 2016 rate-path citing increasing concern for global and domestic risks. The Fed now projects 2 rate hikes over 2016 down from 4 previously.
EUR The single currency continues to move counter-intuitively higher as European equity markets fail to follow through higher in the weeks following the announcement of the ECB’s new stimulus measures. The policy divergence trade between EUR & USD continues to wane following the Dovish FOMC as investors scale back US rate hike expectations.
GBP Markets were caught off guard by a less-Dovish-than-expected BOE who failed to provide the catalyst for further downside in Sterling. The BOE cited rising productivity and tighter labour market conditions as supportive of incomes and consumption also noting that a rate increase is more likely than not as an increase is needed to help boost inflation back to target.
JPY The BOJ kept rates on hold this week as expected though did note the room for further easing if the action was warranted. Despite this outlook JOY continues to be supported, driven further higher this week in the wake of sharp USD weakness fuelled by a Dovish FOMC.
AUD The Australian Dollar continues to forge higher ground supported by stronger commodity prices, a weaker US Dollar and better domestic jobs data. Australian Unemployment rate ticked down to 5.8% from 6% previous. The RBA have recently noted room for further easing and traders may now be wondering if the RBA are likely to step in should AUD continue to strengthen.
CAD The Canadian Dollar continues to be supported by rising Oil prices as optimism continues to grow ahead of the April 17th meeting between Russian led non-OPEC producers and OPEC leader Saudi Arabia to discuss a potential output freeze. US crude inventories continue to build, marking a fifth consecutive week of record high builds, though latest data showed a much smaller build than forecast. Canadian CPI on Friday printed below expectations underscoring the weakness in the Canadian economy despite the neutral tone of the recent BOC meeting