We saw a bit of a mixed day in the financial markets yesterday with the US equities finishing the session down but the dollar resuming its recent trend to the topside. The DXY is now back challenging last week’s high just south of 92.00 and any further strong numbers out of the US this week should see it break through that level. Last night saw the US PCE data hit the Fed’s target at 2% for the first time in over a year which should encourage Fed Hawks and dollar bulls.
There are, however, some storm clouds on the horizon which have the potential to add some risk and volatility to the market. Firstly, the steel tariff exemptions that the US administration extended to its close allies are due to expire today and President Trump has not decided whether to continue with them. EU politicians have already voiced their concerns with the situation and predicted retaliatory sanctions if they are imposed. The President is also due to make a decision on whether to stay in the 2015 deal with Iran, put in place by the previous administration. He’s been fairly vocal on his unhappiness with the current deal and any change will add volatility to the markets. Oil has already had another run to the topside on expectation of fresh negotiations and Israel has upped the ante by accusing Iran of lying about it’s previous nuclear activities.
Looking ahead to today’s trading in Asia, the main focus will be the RBA’s rate announcement, at the risk of sounding like a record that has been broken for a few years, we expect no change from the Reserve Bank. The focus will be on the accompanying statement where we look for any change in the current sentiment, but expect little. Into the London session and we have the first of the PMI releases out of the UK, after last weeks poor data, a strong set of numbers will be needed for any expectation to come back for a May hike from the MPC next week. In the New York session we have Canadian GDP first up before the US ISM Manufacturing PMI numbers later in the session.
Investors will be looking at all the fresh data closely today as well as the RBA’s cash rate announcement but will also be keeping a very close eye on the news wires with plenty of potential for downside risk from a geopolitical perspective.