By Stuart Talman, XE currency strategist
The dollar extended its rebound through Friday's sessions as quiet news flow and a lack of tier 1 data releases ensured the market did not receive any fresh directional cues as a relatively uneventful week wound to a close. Notably, in the two days following the FOMC meeting, US treasury yields have stabilized and the dollar logged back-to-back intraday gains, confirming the initial dovish reaction has faded. The main takeaway from the latest update to monetary policy - uncertainty reigns as the Fed and other central banks await the imposition of US reciprocal and sectoral tariffs. The hope is that the 02 April announcement will bring greater policy clarity, thereby enabling more accurate forecasts regarding growth, inflation and the labour market.
Regarding trade war fears, compared to previous weeks, last week was relatively subdued as the frequency of tariff-related headlines slowed. Friday did bring some hope for more concentrated levies as President Trump commented there will be flexibility on tariffs as his top trade representative is set to engage with his Chinese counterparts next week.
The new US Trade Representative, Jamieson Greer took office, early last week raising hopes for more order and rationale with a heightened focus on the negotiation process. There is no doubt that the Trump administration's MO to-date has caused significant damage, evidenced by the notable erosion of confidence for both businesses and households and the S&P500's circa 10% correction from its 19 February all-time record high. The Greer appointment is expected to alleviate the policy chaos.
Earlier last week, Bloomberg wrote of Greer…..
President Donald Trump’s top trade negotiator is attempting to inject order into sweeping new tariffs expected next month . . . Through the past two months of tariff chaos . . . Greer has largely been out of the picture . . . Under Greer, USTR has reinstated parts of a traditional policy process that were missing from prior tariffs imposed on Canada, Mexico, China and metals by asking for public comment on the reciprocal duties. That gives the trade office a formal way to receive feedback from businesses and other stakeholders.
Regarding Greer's plans to speak with China's trade representatives, Trump refrained from stating what he hoped the talks would achieve and whether the goal was to negotiate a roll-back of current levies.
Back to the dollar, last week's dollar index (DXY) price action and technicals suggest a bottom looks to be evolving as the dollar index has mostly ranged between the 103.20's and 104.20's over the past dozen trading days. The two-day advance to end the week propelled DXY to the upper boundary of the prevailing range, potentially opening a path for further upside. The 38.2% Fibonacci retracement of the month's decline presents at 104.92 with the 200-day moving average in close proximity. A decisive advance beyond these two critical hurdles provides confirmation of the basing call.
The New Zealand dollar consolidated its pullback through Friday's sessions, sellers emerging in the 0.5760's to drive NZD/USD back into the 0.5720's, forming a bearish tail on the weekly candle/bar. The soft weekly close and swift rejection of 58 US cents suggests the Kiwi may re-test sub-0.57 levels this week. A key support zone is located at 0.5670/90.
Aside from trade related headlines, what will market participants be monitoring this week?
S&P Global PMIs for the eurozone, UK and US will be in focus to start the week, particularly the Service PMI for the US which notably softened through the first two months of the year. Across the Tasman, the monthly CPI is released, headline inflation expected to remain at 2.5%. Despite last week's poor jobs growth number, the RBA may refrain from cutting given trade-related uncertainty. CPI for Tokyo also drops. A busy week for UK data also delivers CPI. GDP and retail sales. The week concludes with the Fed's preferred inflation gauge, core personal consumption expenditures, projected to print at an annualised 2.5% given CPI and PPI inputs.
The market may continue to trade in a holding pattern ahead of the 02 April tariff announcement. Projected weekly range for the New Zealand dollar: 0.5650 - 0.5740.
Stuart Talman is Director of Sales at XE. You can contact him here.
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