Spreadex Market Update
USD Fall Deepens, Risk Assets Rally as China Lockdowns to End
USD plunge continues this week as traders begin pricing possible post-July Fed pause.
Equities and risk-currencies rally on USD weakness and China lockdown easing. Oil hits fresh
monthly highs for May. BOJ’s Kuroda reaffirms bank’s commitment to easing.
Key Factors for Today
- USD starts week under pressure on shifting Fed expectations
- Risk sentiment rebounding as China lockdowns to ease
- BOJ’s Kuroda reaffirms commitment to easing
- Oil hits new monthly highs
Coming Up
Very light data sheet today
- CAD Canadian current accounts
- USD Fed’s Waller speaks
- NZD New Zealand building contracts
US Dollar Under Pressure on Shifting Fed Views
The US Dollar starts the week under pressure once again. Despite recent Fed hawkishness
and the expectation of further 50bps hikes to come in June and July, it seems that traders
are now moving to price in the likelihood of the Fed pausing after the July hike. The Fed’s
funds rate in September is now sitting at 2.15%, down from 2.35% in May.
With US markets offline today for the Memorial Day holiday, flows are likely to be light.
Looking through the week, however, action is likely to heat up with the May NFP due on
Friday.
Risk Sentiment Rebounds as China Lockdowns to End
Equities markets continue their recent run of strength over the European open on Monday.
The FTSE is heading back up towards YTD highs while the S&P is now close to turning
positive on the month. A softer US Dollar has helped bolster asset prices. Risk sentiment is
also improving amidst a softening of lockdown restrictions in China which become active
this week. Hopes for a swift bounce-back in activity and demand look likely to keep equities
prices supported near-term.
AUD & NZD Lead the Way on Risk Rebound
In FX, we’ve seen antipodeans (AUD & NZD) leading the way across the European open on
Monday. With risk sentiment rebounding strongly, high-beta currencies are benefitting
nicely from the weakness in USD. Safe-havens meanwhile are seeing a softer open this week
with JPY down alongside USD and CHF weakening also. In comments made overnight, BOJ’s Kuroda has once again reaffirmed the bank’s commitment to maintaining an easing
presence in the market, reinforcing the policy divergence between the BOJ and other G10
central banks.
Precious Metals Rise on USD Weakness
Gold and silver prices have both kicked off the new week with a bid tone. The ongoing
correction in USD is helping precious metals. However, with equities markets and high-beta
currencies bouncing back firmly, gold and silver are struggling to find proper momentum as
traders chase gains in other assets.
Oil Ends Month at Fresh Highs
Oil prices broke out to fresh highs for the month on Monday. Crude futures are now back up
to their highest level since March as a combination of a weaker US Dollar and better risk
sentiment help drive oil demand. The easing of China lockdown restrictions this week is also
helping boost the near-term demand outlook meaning oil should continue higher this week.
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