The US dollar is slightly lower against the G10 currencies but the Japanese yen as the North American session gets under way. Chinese and Japanese markets remain on holiday. Outside the Reserve Bank of Australia’s third rate hike of the year, the news stream is quiet. Contrary to claims otherwise, the Strait of Hormuz remains effectively closed. Still oil prices are consolidating in the in the upper end of yesterday’s range.
The US has busy session of economic data, but with Q1 GDP and the preliminary April PMI in hand, most of the reports are old news. New today is the April services ISM. Still, the recent string of data suggest the AI-related boom continues. The Fed funds futures, which have with an exception last Wednesday, have been discounting a chance of a Fed cut this year. It swung in favor of a hike yesterday and is now pricing in slightly less than a 1-in-4 chance of a rate increase. The rise in the long-end of the US curve can largely be explained by the rise in the expected year-end Fed funds rate over the last couple of weeks.
Prices
G10
• The euro recorded a bearish shooting star candlestick before the weekend and extended its losses to almost $1.1680 in the North American session yesterday. It edged slightly lower today but held above $1.1675. The next area of technical support is near $1.1655, the three-week low seen last Thursday. A push below $1.1630 could signal initial potential toward $1.1575.
• Arguably helped by the jump in US 10-year rates, the dollar set the session high yesterday in North America near JPY157.30, and with Japanese markets still closed today (and tomorrow) took the dollar through resistance is around JPY157.50 to reach JPY157.85. Initial resistance now is seen around JPY158. There still appears to be no comment from the US, which is a fry cry from reports of US Treasury-inspired rate check in January.
• Sterling looked like it hit a brick wall before the weekend after it reached nearly $1.3660, its highest level since mid-February. It settled poorly (slightly below $1.3585) and extended the losses to almost $1.3510 in North America yesterday. Yesterday’s low held and sterling recovered to about $1.3550. Nearby resistance is seen near $1.3565. Options for about GBP455 mln at $1.3575 expire today.
• After recording a bullish hammer candle stick before the weekend, follow-though US dollar buying extended to almost CAD1.3625 yesterday and CAD1.3630 today. It reached CAD1.3550 at the end of last week, the lowest the greenback has been since March 10. A move now above CAD1.3650 lends credence to ideas a low is in place.
• The Australian dollar recorded a new marginal four-year high before the weekend, but it did not signal a breakout. It seems to have simply frayed the upper end of a three-cent trading range (~$0.6900-$0.7200). Some position squaring ahead of today’s central bank decision was seen yesterday and the Aussie eased to around $0.7155. The losses were extended to about $0.7135 today. Yet, by early European turnover, it has recovered to almost $0.7165. The $0.7170-80 area offers the next hurdle.
EM
• The risk-off mood weighed on emerging market currencies yesterday. The Colombian peso led the complex with a 2.3% drop, followed by the Chilean peso’s 1.5% loss. The Mexican peso fell by a more modest 0.40%. The greenback reached almost MXN17.55 yesterday from a pre-weekend low near MXN17.3830 before the weekend. It is consolidating quietly today between about MXN17.4715 and MXN17.5420.
• The dollar recovered from almost a two-week low yesterday against the offshore yuan (~CNH6.8155) to reach CNH6.8350, slightly shy of the pre-weekend high (~CNH6.8360). It tested last Friday’s high today before steadying. It is little changed now. Last week’s high was closer to CNH6.85. The market may be reluctant to push above it as the mainland re-opens tomorrow from its long holiday weekend.
• The Indian rupee seems to be broadly tracking oil prices and more. The rupee fell to a new record low today. The greenback reached INR95.4375. There were scattered reports of intervention, and the rupee initially rose yesterday, following news of BJP’s victory in West Bengal. The gains were not sustained, and it posted a record-low close yesterday before being sold today. There is speculation that the central bank is considering returning to its 2013 playbook when it opened two special swap windows to stem the taper-tantrum-related sell-off of the rupee. First, it offered to swap US dollars of non-resident foreign currency deposits of maturity three years and above into INR at a concessional rate of 3.5% per annum — about 3% cheaper than average market rates at the time. Second, it allowed banks to borrow additional foreign currency funds from overseas and swap them into INR at a concessional rate of 1% below market. The measures were regarded as successful at the time, but the pressure from oil prices and outflow from the equity market are substantial drags. Reports suggest officials may encourage state-owned banks to see foreign currency bonds to draw capital, while the central bank may offer a swap facility to hedge the fx risk.
Other Markets
• Equities are mostly firmer today. Without Japanese and Chinese markets, the other large bourses in the region were mixed. The surging Taiwan and South Korean markets continued to advance, and the latter rose by over 5% today. The former edged higher. Europe’s Stoxx 600 is up about 0.5%, recovering around half of yesterday’s losses. The S&P and Nasdaq futures are also paring yesterday’s declines.
• Benchmark 10-year yields are mostly softer, and the 10-year UK Gilt stands out as a notable exception. Most European yields are 1.5-3.0 bp lower. However, the UK Gilts are playing a little catch up after yesterday’s holiday and the yield is up almost eight basis points. Over the past week, the 10-year yield has risen by about four basis points, second in the G10 to the US 10-year yield increase of about eight basis points. The US Treasury yield is off almost 1.5 bp today to 4.425%. The 30-year yield is straddling the 5% threshold today.
• Gold held support near $4500 and enjoys a firmer tone today after slumping 2% yesterday. It recovered to $4560 so far. It had fallen in five of the past six sessions coming into today. Silver, on the other hand, fell for the first time in three sessions yesterday Its 3.45% loss was the largest in two weeks. It has returned better bid today but well within yesterday’s range.
• June WTI is a couple of dollars lower in consolidative action. It has traded between almost $103 today and $105.50. Yesterday’s high was around $107.45. Rather than attack the two US flagged ships that reportedly made it through the Strait of Hormuz yesterday, Tehran apparently responded by sending two drones to attack an empty UAE tanker, which seems to send a message. The Strait of Hormuz is not open.
Data
• Most of US high-frequency data that will be released today is old news, pertaining to Q1. That includes the March trade balance, new home sales, building permits and JOLTS. The final April services and composite PMI also are on tap, but the preliminary estimate is “good enough”. That leaves April ISM services as the only “new” data point today. Activity is expected to have slowed and prices paid risen. As we approach the halfway point of Q2, the Atlanta Fed’s GDP tracker is at 3.5%, while the median forecast in Bloomberg’s survey is for 1.8% after 2.0% in Q1. The December Fed funds futures, which last Monday were discounting about a 35% chance of a cut this year is now pricing in about a 5% of a hike. Fed governors, Bowman, and Barr speak today.
• Canada reports March merchandise trade figures, while the S&P releases April services and composite PMI. Canada recorded a C$9.92 bln goods trade deficit in the first two months of the year. In January-February 2025, Canada reported a nearly C$2.2 bln surplus. Canada’s manufacturing PMI jumped to 53.3 in April from 50.0 in March. The services and composite PMI like also rose from 47.2 and 47.6, respectively in March. The composite is recovering the 44.9 reading last November. It was above the 50 boom/bust level once last year (October). The highlight of the week is the April employment report on Friday. It lost nearly 95k jobs in Q1 26 after gaining nearly 30k positions in Q1 25.
• The Reserve Bank of Australia’s decision to hike rates for the third time this year renders today’s data moot. The final April services and composite PMI do not draw much attention in any event, though both were revised higher. March household spending surged 1.6%, matching the large increase since July 2022. It was flattered by higher energy prices. The central bank appears to signal it would pause. The future market has almost an 80% chance of a hike at the August meeting. The market the Q3 hike and about a 30% chance of a hike in Q4.
Reviewed by Marc Chandler
on
May 05, 2026
Rating:
