MONTHLY MARKET INSIGHTS
A P R I L 2 017
USD
M O N T H LY M A R K E T I N S IG H TS
APRIL MARKET REVIEW
THE MONTH AHEAD
The U.S. dollar index started the month of April on
positive footing, hitting a four-week high on the 10th,
only to spend the remainder of the month under selling
pressure. The greenback hit its lowest level in over five
months as April wound down.
A broadly stronger euro following France’s first
round of presidential voting skewed the overall dollar
index lower, but the greenback also suffered from a
heightened focus on geopolitics, a decidedly more
mixed tone to U.S. economic data and continued
uncertainty on the outlook for fiscal stimulus from
Washington.
A U.S. airstrike on Syrian forces, mounting tensions
with North Korea, and an increasingly strained
relationship with Russia all kept traders wary of overexposure to the greenback for much of April.
The broad guidelines of the president’s proposals for
tax reform announced late in the month provided the
dollar with a brief boost but the lack of details as well
as the questions about the administration’s ability to
push a major tax deal through Congress limited the
dollar’s gains.
The Fed’s early May FOMC monetary policy meeting will
headline the month’s economic calendar, even though no
change in lending rates is expected. The Fed’s statement
will be closely watched for confirmation that June’s meeting
will likely result in the bank’s second quarter-point rate hike
of the year.
As always, payrolls data will be very closely watched this
month. A dismal payrolls print for March was likely skewed
by seasonal and weather effect, so April’s report will have to
show a marked rebound if investors are to continue seeing
the previous month’s weakness as a one-off.
CPI and other gauges of inflation will be increasingly closely
watched as any further evidence of rising price pressures
could prompt markets to more actively price in a total of four
interest rate hikes in 2017- a positive scenario for the dollar.
Domestic politics could be as important for global financial
markets as any fundamental economic news. Any new
details on the president’s tax plan or any signs of mounting
support for the proposal among Congressional Republicans
would likely support the greenback.
USD INDEX APRIL
101.5
101
100.5
100
99.5
99
98.5
KEY MARKET EVENTS
MAY 3
FOMC MONETARY POLICY STATEMENT
MAY 12
APRIL RETAIL SALES
MAY 5
MAY 26
APRIL EMPLOYMENT REPORT
Q1 GDP
(REVISED)
MAY 12
APRIL CPI
EUR
M O N T H LY M A R K E T I N S IG H TS
APRIL MARKET REVIEW
THE MONTH AHEAD
The euro jumped to its highest level in nearly five
months in late April following the news that centrist
Emmanuel Macron won the first round of voting in
France’s presidential election and will face off against
his far-right rival Marine Le Pen in the runoff round of
voting in early May.
France’s second round of voting in its presidential
election will likely dominate investors’ focus this month.
While the centrist Emmanuel Macron is widely expected
to win over his far-right rival, Marine Le Pen, the event
risk and recent surprises of the Brexit and U.S. election
could continue to keep markets nervous.
The market friendly outcome as well as the fact that
pollsters called it correctly helped alleviate worries
about the rise of populism in the euro zone and also
suggested a high probability that Macron will likely win
the runoff vote on in May.
Euro zone data on Q1 GDP and as well as PMI reports
for April will be closely watched for continued signs of
strength in the 19-member bloc’s economy. Another
round of upbeat economic reports could support the view
that the ECB may shift to a more neutral policy stance at
its next Governing Council meeting in early June.
The single currency pared some of this month’s gains
after the ECB expectedly left its key lending rate
unchanged on April 27th but sounded a dovish tone
on inflation, despite recent improvements in euro zone
economic data.
European economic data of late, including various
gauges of business and investor sentiment,
manufacturing and service sector PMI’s, household
spending and rising inflation have signaled an
improving backdrop that could ultimately result in the
ECB shifting to a more balanced (and euro-positive)
policy stance at its June Governing Council meeting.
Soaring German sentiment indices have helped reassure
investors that the bloc’s largest economy remains an
engine of broader strength, despite elevated economic
and geopolitical uncertainty. Another month of solid
German reports should continue to support the euro.
While the Brexit has so far had only a limited impact
on the euro, the expected kick off of official Brexit
negotiations between the U.K. and the European Union
could begin to have a more marked negative impact on
the single currency.
EUR/USD APRIL
1.10
1.09
1.08
1.07
1.06
KEY MARKET EVENTS
MAY 3
Q1 GDP
(FLASH)
MAY 16
MAY 7
SECOND ROUND FRENCH PRESIDENTIAL ELECTIONS
MAY GERMAN ZEW INVESTOR MORALE
MAY 24
MAY COMPOSITE PMI SURVEY
MAY 12
GERMAN Q1 GDP
(FLASH)
JPY
M O N T H LY M A R K E T I N S IG H TS
APRIL MARKET REVIEW
THE MONTH AHEAD
The Japanese yen fell to near a one-month trough
in late April after the market-friendly French first
round presidential election result boosted investor
risk appetite. The safe-haven yen slid as investors
flocked to riskier and higher returning assets.
Japanese Q1 GDP will likely headline this month’s
economic events calendar, with another quarter of
generally solid economic growth likely to encourage
some confidence in the world’s third largest economy’s
recovery.
Equities in emerging markets rallied to their highest
level in two years amid the broad flight to higher
yielding assets in the wake of the news that France’s
centrist presidential candidate beat out his far-right
and far-left rivals in the first round of voting.
As always, CPI in Japan will be closely watched for
any signs that inflation is finally piecing together a
sustainable upward trend. A below-consensus print
on inflation would likely embolden the BOJ to remain
dovish- a scenario likely to limit JPY upside.
USD/JPY APRIL
112
The yen rallied to its highest level since midNovember around the middle of the month as
mounting geopolitical concerns related to rising
tensions with North Korea kept investors wary of
straying too far from the relative safety of Japanese
assets.
The Japanese economic calendar, while important, will
likely continue to take a backseat to broader moves
in global financial markets and in particular, to moves
across global bond markets. A sustained move higher
in U.S. bond yields on any hawkish commentary from
the Fed, strong U.S. data or improvement in the outlook
for fiscal stimulus should send USD/JPY higher.
The Japanese yen slipped against the greenback
despite the most upbeat BOJ monetary policy
statement in nearly a decade late in April. The BOJ
noted increasing confidence in a sustained recovery
and an improving inflation outlook but maintained
that monetary accommodation will remain in place
for the foreseeable future.
Geopolitical developments and resulting demand for
safety in global markets will likely continue to drive the
yen’s direction as well. Any flare-up in tensions with
North Korea, a widening conflict in Syria or a surprise
in France’s election would likely send the yen soaring.
111
110
109
108
KEY MARKET EVENTS
MAY 10
MARCH CURRENT ACCOUNT
MAY 25
MAY CPI
MAY 29
MAY 16
MARCH MACHINERY ORDERS
APRIL UNEMPLOYMENT RATE
MAY 17
Q1 GDP
GBP
M O N T H LY M A R K E T I N S IG H TS
APRIL MARKET REVIEW
The British pound soared to its highest level against
the dollar in seven months in late April, still broadly
supported by this month’s announcement that the
U.K. will have an early election in June.
The announcement from Prime Minister Theresa May
that an election will be held in June and the expected
landslide victory that her Tory Party will enjoy signaled
a stronger mandate for Mrs. May and her team in the
upcoming Brexit negotiations with the EU.
Economic data this month was largely ignored by
investors more focused on the June early election
and the likely positive impact that a strong Tory
performance will have on the U.K.’s Brexit negotiations.
Data showing declining retail sales, lackluster wages
and an economy that slowed to its lowest level three
years in Q1 did little to dent the pound’s upbeat tone.
While the rise of consumer inflation above the BOE’s
2.0%(y/y) target would normally support the outlook for
tighter monetary policy and a stronger pound, the fact
that the rise in prices has not been accompanied by
rising wages has undermined households’ purchasing
power and has limited the positive impact on sterling.
THE MONTH AHEAD
The Bank of England’s Monetary Policy Committee meeting
this month will take center stage. While no change in rates
is expected, the BOE’s statement will be closely watched to
gauge the level of concern among officials surrounding the
Brexit uncertainty and the extent to which they view rising
prices as something that could warrant tighter monetary
policy in the future.
Brexit negotiations are likely to kick off in in the months
ahead. Unfortunately for market participants, there is no
set schedule or predetermined path for the U.K.-EU talks to
follow. Consequently, headline risk and political uncertainty
will likely remain key drivers of the pound’s direction over the
foreseeable future.
U.K. CPI around the middle of the month will likely headline
the economic calendar. March’s CPI held above the BOE’s
2.0% target for the second-straight month and fueled some
speculation that the BOE could be inching closer to a rate
hike. Another rise in CPI could further support the pound.
GBP/USD APRIL
1.30
1.29
1.28
1.27
1.26
1.25
Retail sales will also be closely watched as rising prices
and stagnant wages have undermined British consumers’
purchasing power and have damaged a key pillar of the
U.K.’s economy. Further evidence that the engine of
consumer spending is slowing would hurt the pound.
1.24
KEY MARKET EVENTS
MAY 4
APRIL PMI SERVICES SECTOR INDEX
MAY 17
MAY 11
APRIL CLAIMANT COUNT UNEMPLOYMENT
BANK OF ENGLAND MPC MEETING
MAY 18
APRIL RETAIL SALES
MAY 16
APRIL CPI
CAD
M O N T H LY M A R K E T I N S IG H TS
THE MONTH AHEAD
APRIL MARKET REVIEW
The Canadian dollar was pummeled in April, falling to
its lowest level in 14-months against the U.S. dollar as a
result of crude oil that fell below the $50/barrel mark and
the mounting protectionism from the White House, which
Canada and the loonie had largely avoided thus far.
News late in the month that the U.S. government will
slap an average 20% duty on Canadian softwood lumber
imports sent the Canadian dollar broadly lower and fanned
worries about a broader risk to the flow of goods from
north of America’s border.
Reports that the White House was preparing an executive
order to leave NAFTA sent the Canadian and Mexican
currencies plummeting late in April. While President Trump
dialed back the threat, saying he was open to renegotiating
the 23-year old trade pact, the damage had already been
done to the loonie.
Economic data this month was little help to the Canadian
dollar. A pullback in inflation, a hefty decline in retail
sales and February’s GDP that was flat all suggested a
moderation in overall economic activity toward the end of
the first quarter.
The Bank of Canada this month is not expected to
make any changes to monetary policy. The market will
however, be watching closely for any follow up to the
BOC’s slightly upgraded tone from April’s meeting.
Given March’s pullback in inflation and uncertainty
regarding increasing protectionism from the White
House, a more cautious tone could be warranted.
Canadian inflation figures late in the month will
also be very closely watched as March’s CPI saw a
moderation in prices from February’s highs. A further
decline in CPI would likely suggest a cautious policy
stance from the BOC and further undermine the
loonie.
Building U.S. oil inventories and elevated global
output levels have pushed oil back under the $50/
barrel mark. Further weakness in crude prices in May
would do the heavier loonie no favors.
Continued focus on the U.S-Canada trade relationship
by the White House could keep the loonie pressured.
Canada had largely dodged this administration’s
focus when it came to trade imbalances, which had
mostly been focused on Mexico. The news of U.S.
duties on Canadian lumber imports as well as talk of
scrapping NAFTA continue to weigh on the CAD.
USD/CAD APRIL
1.36
1.35
1.34
1.33
1.32
KEY MARKET EVENTS
MAY 4
MARCH TRADE BALANCE
MAY 24
MAY 5
APRIL EMPLOYMENT REPORT
BANK OF CANADA MONETARY POLICY ANNOUNCEMENT
MAY 19
APRIL CPI
MARCH RETAIL SALES
AUD NZD
&
APRIL MARKET REVIEW
MONTHLY MARKET INSIGHTS
THE MONTH AHEAD
The Aussie lost some of its luster in April, falling to a
three and a half-month trough against the greenback
as soft data, lower industrial commodities and
geopolitical worries weighed on the previously
high-flying currency.
Australia’s economic calendar will be headlined by the
Reserve Bank of Australia’s Policy Board meeting early in the
month. No change in rates is expected from the RBA, but
soft data recently on inflation could prompt a renewed dovish
tone on the bank’s monetary policy outlook.
The New Zealand dollar fared even worse than its
antipodean rival, falling to its lowest level against
the greenback since early June, 2016. Similar to the
Aussie, the kiwi was hit by a combination of soft
domestic data and elevated geopolitical worries.
New Zealand’s calendar will also be headlined by the RBNZ’s
policy board meeting this month. The kiwi has struggled due
to the bank’s dovish tone so any renewed sense of concern
from the RBNZ would likely keep the New Zealand dollar
pressured.
A lackluster Q1 Australian CPI print, while showing
consumer prices at their highest level since 2014,
still fell short of market expectations. Consumer
prices were unchanged from Q4 2016 and
suggested little pressure on the Reserve Bank to
adopt a more hawkish monetary policy stance
anytime soon.
Australian employment figures will also be closely watched this
month. A surprisingly strong reading of March’ employment
report had only a limited positive impact on the Aussie but a
repeat performance could help reassure investors about the
Australian economy’s overall performance.
The New Zealand dollar received a modest boost
from a hotter than expected Q1 CPI print in mid-April,
but any support proved short-lived. Uncertainty
over France’s presidential vote, mounting tensions
with North Korea and a widening conflict in Syria
all kept the risk-sensitive kiwi biased sharply lower
heading into the end of the month.
As always, the dollar-bloc and commodity currencies will be
driven by broader moves in global financial markets. Relative
stability or calm in markets could revive investors’ demand
for yields in higher risk assets. Heightened market volatility or
any flare-up in geopolitical uncertainty could result in a flight
to safety out of the AUD and NZD and into safer USD and
JPY assets.
AUD/USD APRIL
0.77
0.76
0.75
NZD/USD APRIL
0.71
0.70
0.69
KEY MARKET EVENTS
MAY 2
MAY 17
AU RESERVE BANK OF AUSTRALIA POLICY BOARD MEETING
AU APRIL EMPLOYMENT REPORT
MAY 23
MAY 8
AU MARCH RETAIL SALES
NZ APRIL TRADE BALANCE
MAY 10
NZ RESERVE BANK OF NEW ZEALAND POLICY BOARD MEETING
MONTHLY MARKET INSIGHTS
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