Overview: The US dollar has come back better bid today. It is firmer against all the G10 currencies. The proximate cause has been reports that as early as today, the 100th day of President Trump's second-term, he will announce another retreat pivot: imported auto parts for vehicles made in the US may be waived or postponed and automakers will not bear the aluminum and steel tariffs. Of the G10 currencies, the Canadian dollar is faring best on the heels of the Liberal victory, but it does not appear to have overcome its minority government status. The Japanese yen and Swiss franc are off around 0.5%-0.6%, the most among the G10, perhaps reflecting the calmer tone in the capital markets. Emerging market currencies are mixed. Many from Asia Pacific, including the yuan, are firmer, while central European currencies are trading heavier.
Equities are mostly firmer today, through China and Singapore are underperforming as they did yesterday. Europe's Stoxx 600 is higher for the sixth consecutive session, and US index futures are building on yesterday's recovery. Despite firmer inflation expectations in the ECB survey, European benchmark 10-year yields are off 1-2 bp. The 10-year US Treasury yield is about two basis points firmer near 4.23%. Gold has unwound yesterday's gains but remains rangebound and is thus far, holding above $3300. A shelf was carved in the $3260-$3265 area last week. June WTI is weaker and has been sold to an eight-day low a little below $61 today. Chart support is near $60.
USD: The Dollar Index was sold to a three-day low in North America yesterday to slightly below 98.95. Yet, for the fourth consecutive session, it remains within last Wednesday's range, when it recorded a low near 98.85, which was also a three-year low. News that President Trump is considering some modification of the auto/auto parts tariff is helping the greenback steady today. The Dollar Index is consolidating in its trough and reached a high near 99.30. It needs to move above 100.00 to indicate anything important from a technical perspective. Today's data include March's goods trade deficit, house prices, the Conference Board's measure of consumer confidence and the JOLTS report. The market has already taken on board that the survey data is soft. Both Fed Chair Powell and Treasury Secretary Bessent have acknowledged it but also noted that the real sector has held up considerably better. We expect this to change this week, but it is not going to be so much from the March JOLTS data. Growth in Q1 looks to have nearly stagnated and job growth this month appears to have slowed from 228k in March to around 130k. The container shipments from China to the US are like a train wreck in slow motion. It is already adversely impacting the West Coast ports will be evident in the Midwest shortly, and the East Coast around 10 days later. US inventory data, which also will be reported today, may understate the stockpiling. Reports suggest inventories are also being accumulated in Canada.
EURO: The euro rose above $1.1400 in North America yesterday and reached $1.1425. It has pulled back today and found support near $1.1375. It remains in the range set last Wednesday (~$1.1310-$1.1440). Given the positioning of the momentum indicators, we expected consolidative/corrective action. The eurozone confidence numbers are slightly softer but are not showing the sharp drop that has been experienced in the US. The ECB survey on inflation expectations ticked up, but the swaps market has a quarter-point cut nearly fully discounted for the June meeting. Tomorrow, we are likely to learn that as the World Economic Forum declared Europe was uninvestible, eurozone growth was outstripping US growth in Q1 for the first time in nearly three years. To be sure, EMU growth is nothing to write home about at about 0.2% quarter-over-quarter. Spain reported today 0.6% GDP and a 0.6% rise in the harmonized April CPI to keep the year-over-year rate steady at 2.2%.
CNY: The dollar was turned back from CNH7.30 yesterday and fell to about CNH7.2830. It extended the pullback today to about CNH7.2565, a three-and-a-half-week low. It has not closed below CNH7.25 since mid-March. Meanwhile, the PBOC has moved the daily reference rate a little more than it had been. The fix was set at CNY7.2029 (CNY7.2043 yesterday). It is the fourth consecutive session of a low dollar reference rate, the longest it has done this in two months. Beijing signaled greater loan assistance to exporters, and although it says it will boost domestic demand, it does not appear to be in a hurry to announce more stimulus. Officials continue to deny claims by President Trump that trade negotiations are underway. Estimates range from a 40%-60% decline in container shipments to the US.
JPY: The dollar unwound its pre-weekend gains against the yen and fell to about JPY142.00, a three-day low. Last week's low was slightly below JPY139.90, which was the lowest the greenback has been since last September (~JPY139.60). The 200-day moving average is around JPY138.20. The dollar has stabilized today and recovered to JPY142.70. Last week's high was near JPY144.00 and this must be overcome to lift the technical tone. Japan's top foreign exchange official in the Ministry of Finance, Mimura, denied press reports that claimed that US Treasury Secretary Bessent said a stronger yen is preferable. In any event, top US officials have indicated a preference for a weaker dollar exchange rate, which is also consistent with the effort to shift US corporate expansion strategy from direct investment (build locally, sell locally) back to the traditional export-oriented thrust. Japan's economic calendar becomes more active tomorrow with March retail sales and industrial production figures due. Both look weak. The 0.4% decline in industrial production that is expected follows a heady 2.3% rise in February, which was payback for more than a 3% cumulative decline in the previous three months. Retail sales are seen falling by 0.7% according to the median forecast in Bloomberg's survey after a 0.4% increase in February and a 1.2% gain in January. The world's third largest economy may have nearly stagnated in Q1 25 after it expanded by 2.2% at an annualized clip in Q4 24.
GBP: Sterling rose around a cent against the dollar yesterday, its largest gain in two weeks. It rose to $1.3445 to reach a new high for the year and take out last year's high. It is holding in a narrow range today and found support slightly below $1.3400. Sterling was aided by the continued recovery from its losses earlier this month against the euro. The euro fell to a three-week low of a little below GBP0.8500. It posted a bearish outside down day by trading on both sides of the pre-weekend range and settled below Friday's low (~GBP0.8510). The downward momentum appears to be stalling after reaching about GBP0.8455 today. In the dearth of market-moving data in the coming days, the May Day local elections are the focus with keen interest on the performance of the Reform Party, which may be the big winner. The Tories have the most to lose given that the last round in 2021 election saw a strong showing on the coattails of the then-fascination with Boris Johnson. The Tories suffered their worst parliamentary defeat in its storied history last year.
CAD: The greenback traded between roughly CAD1.3815 and CAD1.3900 yesterday and remained within the range set in the middle of last week (~CAD1.38-CAD1.39). It extended the range marginally today but remained above CAD1.3800. The Liberals eked out a small victory in yesterday's election. Despite the seeming popularity of Mark Carney, as was the case under Trudeau, he will lead a minority government. Canada reports February GDP tomorrow. It looks flat, growing 0.4% in January.
AUD: The Australian dollar continues to press against the upper end of its five-month range above $0.6400. Yesterday's high was around $0.6335 and today recorded a marginal new high since last November near $0.6450 before reversing lower and falling to around $0.6410. The 200-day moving average, which the Aussie has not traded above since last November, is nearly $0.6460. Australia reports Q1 CPI tomorrow. The year-over-year headline and underlying rates are expected to moderate a little. The Reserve Bank of Australia is seen to be among the most aggressive of the G10 central banks this year. The futures market has discounted about 115 bp of cuts, which is four quarter-points cuts and 60% of a fifth.
MXN: The dollar continues to trade in its recent trough against the peso. After spiking to MXN21.08 earlier this month, it recorded a low last week near MXN19.47. The peso lost about 0.45% against the greenback yesterday as US stocks slumped. The dollar rose to almost MXN19.61 after falling to session lows in early North American turnover yesterday near MXN19.48. The dollar is better bid today and is near session highs (~MXN19.6355) in late European morning turnover. Last Friday's high was around MXN19.69 and a move above here may squeeze out late dollar shorts. The rolling 30-day correlation between changes in the peso and the S&P 500 is almost 0.64, its highest in two years. Yesterday, Mexico reported a $3.44 bln trade surplus in March, which is the largest surplus since December 2023. The Q1 trade surplus of $1.1 bln contrasts with a $2.7 bln deficit in Q1 24. Exports rose 12.7% on top of a 10.9% rise in February. Imports snapped a four-month drop and rose almost 10.7%. Q1 GDP will be reported Wednesday and the median projection in Bloomberg's survey for unchanged report conceals an average forecast of a small contraction after a 0.6% decline in output in Q4 24.
Reviewed by Marc Chandler
on
April 29, 2025
Rating:
