Fed inflation divisions pulls back US dollar

Fed Officials expressed mixed opinions following last week’s hawkish bent. It was no surprise that they disagreed on whether inflation is to be transitory. By the end of the week, the US Dollar had eased off its peaks against most of its Rivals.

USDX at 91.79 is 0.7% above its 90-day average, range 89.68-93.28. 1D▼-1.1%US-Dollar index

The Dollar Index (USDX), a popular gauge of the Greenback’s value against a basket of 6 major currencies slipped from 92.40 to 91.76, a drop of 1.1%.

EUR to USD at 1.1938 is 0.8% below its 90-day average, range 1.1718-1.2250. EUR/USD Rates

Compared to other currencies, the EUR/USD has been stable.

AUD to NZD at 1.0737 is just below its 90-day average, range 1.0612-1.0921. AUD/NZD Rates

The 2-week lockdown for the greater Sydney region has put pressure on the AUD/NZD cross.

Popular Rate Trends Last Week

AUD/USD – the Australian Dollar rallied against the overall weaker US Dollar to 0.7595 at the end of the week. The AUD/USD pair hit a 2021 low at 0.7470 on Tuesday. AUD/USD weekly high was at 0.7775. More inflation data from the US is due out tonight and another surprise to the upside will see the AUD/USD under more pressure.

EUR/USD – Weakened against the US Dollar to a weekly low at 1.1850 from 1.2130 last Friday. The Euro settled at 1.1935 as this is written. Compared to other currencies, the EUR/USD has been relatively stable. Looking like a 1.1850-1.2050 range for now.

GBP/USD – In contrast to the US Federal Reserve, the Bank of England did not provide any hints of being in a hurry to hike interest rates. Sterling was changing hands against the Greenback at 1.3905 early Friday evening in Sydney (1.3820 last Friday). Weekly high for the British Pound was at 1.4001 while the low traded was 1.3784. A stronger US Dollar will see Sterling continue to slide.

USD/JPY – this currency pair benefitted from overall Dollar strength and the market’s risk-on stance. Overall range for USD/JPY was a steady 109.70 to 111.14. As this is written (Friday night, 5.40 pm Sydney), the Dollar is at 110.77 Yen. The bias for the USD/JPY pair is on the upside with the 111.30 resistance level beckoning. A firm base has now formed at the 109.70-80 level.

USD/CAD – from a low earlier this week at 1.2250, the US Dollar has grinded higher against the Canadian Loonie, peaking at 1.2480 on Monday. USD/CAD settled at 1.2320 by Friday afternoon. Mid-week saw the release of Canadian Retail Sales for April which slumped to -5.7% due to the country’s lockdown due to a rise in Covid infections. Looking like a 1.2300-1.2500 range for now.

USD/SGD – hit a weekly high at 1.34994 from 1.3360 a week ago. On Friday, the Greenback was trading at 1.3425. The 1.3500 resistance level is formidable but if broken could see this currency pair higher. US Core PCE numbers are key for the Greenback tonight. This inflation gauge is rumoured to be the Federal Reserve’s favourite inflation measure. Likely range into next week is 1.3350-1.3550.

EUR/GBP – weekly range was between 0.8530 to 0.8602. On Friday, the EUR/GBP cross was grinding higher, changing hands at 0.8595. The Bank of England’s more dovish tilt yesterday has pushed this cross higher. Next resistance lies at 0.8630 which is achievable in this environment. The base is formidable at 0.8530.

USD/THB – The US Dollar has steadily risen against the Thai Baht hitting a peak last night at 31.98 (from 31.30 a week ago). The 32.00 resistance level is strong and should hold any USD advances. Strong support can be found at 31.50 and 31.30. Likely range in the coming week 31.50-32.00.

USD/PHP – Like the other USD/Asian currency pairs, USD/PHP also shifted its range higher following last week’s Federal Reserve hawkish shift. The Greenback opened at 48.70 in Asia on Friday and drifted lower to its current 48.55. The base at 47.80 held well and we are now likely to see a slightly higher USD/PHP range of 47.80-48.80.

NZD/USD – the Kiwi hit a low at 0.6930 a week ago following the Federal Reserve surprise markets with their projection of higher interest rates sooner than expected (2023). On Friday, the NZD/USD pair was trading at 0.7065 as the Greenback eased against the major currencies. Like the Australian Dollar, the New Zealand Dollar also benefits from a risk-on stance. NZD/USD high this week was 0.7073. Stiff resistance at 0.7100 should contain any rallies. But if broken could see 0.7150. Range likely 0.6975-0.7015.

AUD/JPY – last week the Aussie was fetching 84.30 before the Federal Reserve shifted to its hawkish bent. The result was a large drop in the AUD/USD pair while the USD/JPY was little changed. Which saw AUD/JPY plunge to a weekly low at 82.10. The risk-on stance from the markets propelled this cross to its current 84.10 level. Resistance at 84.50 should contain any topside attempts while a base is now strong at 83.20.

AUD/NZD – The recent rise in Covid infections in the greater Sydney area affects the whole country. This week’s rise in Covid 19 cases in greater Sydney put pressure on the AUD/NZD cross. From last week’s 1.0813 high, the Aussie has drifted lower against the Kiwi to its current 1.0735. The weekly low was seen yesterday at 1.0726. Looking like a further drift lower to the support at 1.0700. Topside is firm at 1.0780.

GBP/AUD – Sterling lost ground against the Aussie following last night’s Bank of England announcement. GBP/AUD was last at 1.8307 from its opening at 1.8360 this morning. Earlier in the week, Sterling hit a high at 1.8523. Weekly low traded was at 1.8280 last week. Looking like a drift lower to that 1.8280 support area first. Topside is at 1.8400 and 1.8470.

USD/INR – Weekly range has been between 74.05 to 74.37. Prior to the Federal Reserve’s hawkish shift, the US Dollar was trading at 73.27. Resistance can be found at 74.50 and 75.00 while support is strong at 73.80, 73.00, and 72.50. Looking like a 73.70 and 74.70 range in the near term.

The direction of inflation is important as that is an good indication of whether Interest Rates will rise or fall and this in turn determines Exchange Rates. You can read more about this connection in our Guide – Interest Rates and Currencies – Exploring the Relationship.