Asian equities were mixed on Tuesday with some markets closed as investors braced for a heavy event week packed with top-tier data releases and key central bank meetings. European futures are signalling a mixed open with market players awaiting the start of the Fed meeting and rate decision on Wednesday. In the currency space, the dollar edged lower while AUD surged after the Reserve Bank of Australia (RBA) unexpectedly raised interest rates. Gold prices continue to be trapped within a range while oil prices remained pressured by concerns about China’s economic outlook.
The new few days could be explosively volatile for markets due to the Fed and ECB meetings, as well as key data including the US ISM Services and Friday’s monthly non-farm payrolls report. Some volatility can already be seen in the FX space after the RBA surprised markets by hiking rates by 25 basis points this morning. Aussie bulls dominated the scene following the news, rallying over 1% against the dollar to punch above 0.6700. Given how the overall tone of the RBA statement sounded hawkish with the central bank warning of more hikes to come, this could support the aussie moving forward.
Dollar braces for Fed decision and NFP cocktail
The past few weeks have been rough for the dollar thanks to expectations around the Fed pausing rate hikes after the FOMC meeting on Wednesday. Markets widely expect the central bank to raise interest rates by 25 basis points this week, taking the upper band of the Fed funds rate to 5.25%. Investors will be closely scrutinising the statement and Powell’s press conference for any confirmation that a pause in hikes is on the table. Should Powell adopt a more cautious tone, this could whack the dollar, pulling the DXY back towards major support at 100.79.
The next major risk event for the dollar will then be April’s non-farm payrolls report on Friday. Markets expect the US economy to have created 180k jobs in April, which is less than the prior month, while the unemployment rate is seen rising to 3.6%. If the US jobs report is stronger than market forecasts, this may support expectations around the Fed keeping US rates higher for longer. However, if the jobs data disappoints, this could feed bets around the Fed pausing hikes before eventually cutting rates. That outcome could result in further dollar weakness.
Currency spotlight – EURUSD
This could be a wild week for EURUSD thanks to the Fed and ECB rate decisions, as well as top-tier data from Europe and the United States. The ECB is also expected to hike interest rates by 25bp, on Thursday. But it may be wise to keep an eye on the latest eurozone CPI numbers and Bank Lending Survey released on Tuesday which could influence what the central bank does.
Taking a look at the technical picture, EURUSD seems trapped within a range with bears eyeing support at 1.0950. A break below this level could signal a decline toward 1.0910 and 1.0845. Alternatively, if 1.0950 proves to be reliable support, prices may venture back toward 1.1075 resistance.
Commodity Spotlight – Gold
Gold prices struggled for direction on Tuesday, in what felt like the calm before the storm. Prices remain trapped within a range and waiting for a fresh fundamental spark to trigger a breakout. The array of heavy risk events this week, ranging from the Federal Reserve decision and NFP among other key releases could inject fresh life into gold.
In the meantime, prices are tracking sideways between $1970 and $2015 with the major psychological level of $2,000 at the centre. A strong breakout above $2015 may encourage a move toward the April high at $2047. Alternatively, a breakdown below $1970 could open the doors toward $1950 and $1935, respectively.