US Dollar May Retreat as ADP, ISM Data Wighs on Fed Policy Outlook

Talking Points:

US Dollar May Fall as ADP, ISM Data Undermines Fed Outlook
NZ FinMin English Comments Send Kiwi Dollar Lower Overnight
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The US Dollar continued to advance higher in overnight trade, with prices on pace to deliver a fifth consecutive day on the upside. The move tracked a pickup in front-end US Treasury bond yields, pointing to firming monetary policy expectations as the catalyst. From here, Fed policy speculation will be informed by the March editions of the ADP Employment report and the ISM Manufacturing reading in the hours ahead. The former is due to show private-sector hiring accelerated compared with the prior month while the latter reflects a slight slow-down in factory-sector activity growth.

US economic news-flow has increasingly underperformed relative to consensus forecasts since late December. This warns that analysts may be over-estimating the vigor of the world’s largest economy, opening the door for downside surprises. Soft outcomes may push out investors’ baseline scenario for when the rate-setting FOMC committee begins raising interest rates, undermining support for the greenback and sending it downward. As it stands, Fed Funds futures price in the first post-QE increase in target range for the baseline lending rate in October.

The New Zealand Dollar underperformed, falling as much as 0.8 percent on average against its leading counterparts. The move lower followed comments from New Zealand Finance Minister Bill English, who said the Kiwi’s strength represents a challenge for exporters and dismissed the prospect of its parity with the Aussie, saying he will “believe it when he sees it”. It is unclear why the markets assigned such significance to relatively vague commentary seemingly devoid of actual policy guidance.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

22:30

AUD

AiG Perf of Mfg Index (MAR)

46.3

–

45.4

23:00

AUD

CoreLogic RP Data House Px (MoM) (MAR)

1.4%

–

0.3%

23:00

NZD

QV House Prices (YoY) (MAR)

7.7%

–

6.4%