USD: A Buy On Dips: Further Upside Vs EUR, JPY, AUD - Credit Agricole
The USD has been well supported, mainly on the back of somewhat higher expectations of the Fed considering higher rates in June. According to yesterday’s FOMC meeting minutes most central bank members judged it would likely be appropriate to hike in June if data remains consistent with firmer labour market conditions and progress on inflation. However, it must still be noted that several Fed members indicated already that June remains a live meeting, and markets are now pricing in a 30% probability of such a move to happen. Nevertheless, external risk events such as the EU referendum should prevent such short-term expectations from rising more considerably, regardless of incoming data confirming further improving growth prospects.
Nevertheless, long-term rate expectations should continue to rise and that should keep the USD a buy on dips, in particular against low yielder such as the CHF and JPY. In that respect it must be noted too that any gradual tightening of monetary policy is unlikely to fully compensate for further improving growth prospects. As such risk sentiment is unlikely to deteriorate more considerably what makes another case of safe haven currencies to remain capped.
In Australia, April employment came in mixed. Employment grew at a slower than expected pace while the unemployment rate remained steady at 5.7% (cons. 5.8%). As stressed previously data is unlikely to make a case of further falling RBA rate expectations from the current levels. This in turn leaves pairs such as AUD/USD driven by external factors such as Fed rate expectations, which have been more supported of late. Nevertheless, as stressed above, near-term expectations are unlikely to rise further and that should keep the pair broadly range-bound for now. From a longer-term perspective we anticipate further downside against the USD.