Today the DXY dollar index is declining. As of this writing, DXY futures are traded 100 pips below yesterday's 2-year high, near 102.94 mark. Has the dollar started to weaken?
The reason for its weakening was probably yesterday's publication of important macro data. Thus, a preliminary estimate indicated a decline in US GDP in the 1st quarter (-1.4% against the forecast for growth by +1.1% and after growth in the 4th quarter of 2021 by +6.9%). GDP data is one of the key data (along with labor market and inflation data) for the Fed in terms of its monetary policy, and the weaker estimate is likely to alert market participants to the Fed's determination to pursue a tighter monetary policy.
At the same time, the Fed's preferred price index for personal consumption expenditures and the GDP price index (for the 1st quarter) came out with an increase in indicators, moreover, above the forecast: +7% and +8%, respectively, against +6.4% and +7.1% in the previous quarter. The data once again indicate that the Fed is in a difficult situation - to cope with accelerating inflation, without harming, at the same time, the economic recovery.
Today, the volatility in the US dollar quotes will increase again at 12:30 and 14:00 (GMT), when another block of important macro statistics for the United States will be published, among which is the core personal spending price index (PCE) for April (the Fed uses annual core PCE price index as the main indicator of inflation) and the final estimate of the University of Michigan Consumer Confidence Index).
Let's also remind that today, on the last trading day of the week and month, fixing long positions on the dollar may continue if the US macro data expected at the beginning of the American trading session turns out to be weaker than forecasts.
The beginning of next week will be associated with the publication on Monday (at 14:00 GMT) of the US manufacturing PMI index, which is an important indicator of the state of the American economy as a whole, and the RBA meeting, which will end on Tuesday with the publication (at 04:30 GMT) interest rate decisions.
It is expected that at this meeting the Central Bank of Australia will leave the rate at the current level of 0.1%, although unexpected decisions are not ruled out.
"Australia's economic recovery is accelerating and the fiscal trajectory is ahead of earlier expectations," S&P recently said. At the same time, inflation is accelerating in the country's economy (in the 1st quarter of 2022, the consumer inflation index CPI increased by +5.1% against the forecast for growth by +4.6% and +3.5% in the previous quarter). The truncated average consumer price index rose +3.7% (yoy) after rising +2.6% in Q4 2021, exceeding the forecast (+3.4%) and RBA-defined target range of 2%- 3%. Nearly a multiple of inflation above the RBA's target range will put pressure on the central bank to tighten monetary policy.
One way or another, during the publication of the RBA decision, a sharp increase in volatility in the quotes of the Australian dollar and the AUD/USD pair is expected.