Earnings Season Start, Fed Comments In Focus For Currency Markets

A lull in impactful economic data flow saw risk sentiment setting the pace for currency markets at the start of the trading week. The sentiment-sensitive Australian and New Zealand Dollars as well as the anti-risk Japanese Yen seesawed against a backdrop of oscillating share prices.

Chinese inflation figures failed to excite investors. The benchmark year-on-year CPI growth rate registered at 2.3 percent, matching the prior month’s result and falling short of expectations calling for an increase to 2.4 percent. The markets largely ignored the data, seemingly dismissing its near-term implications for PBOC policy bets.

Looking ahead, a quiet calendar in European hours is likely to put Fed-speak in the spotlight. Comments from William Dudley and Robert Kaplan, Presidents of the central bank’s New York and Dallas branches respectively, are due to cross the wires.

We have argued that Fed rhetoric since the March FOMC meeting has amounted to a concerted effort to rebuild the link between economic data and priced-in policy bets. This is meant to realign official and market-based forecasts, setting the stage for smooth on-boarding of a rate hike in June.

To that end, Dudley and Kaplan would need to continue developing the narrative that external headwinds – while worrisome – remain a possible rather than realized threat to the policy outlook. This may lay the groundwork for the markets’ response to this week’s data flow.

US news-flow has steadily improved relative to consensus forecasts since early February. This may make for upbeat results when retail sales, CPI and consumer confidence figures emerge this week. If Fed officials are successful in linking such outcomes to rate hike bets, the US Dollar may launch a recovery.

The start of the first-quarter corporate earnings reporting season may also make itself felt in the FX space. Collectively, earnings per share for S&P 500 companies are seen falling 7.9 percent year-on-year. If this proves to trigger risk aversion, commodity bloc currencies are likely to suffer while the Yen builds on recent gains.