The Surprise of USD: Heading Towards $100 and More?

<WikiFX Malaysia Original: Editor – Fion>

The dollar index posted its biggest one-week percentage gain in a month last week, supported by expectations that the U.S. Federal Reserve may further tighten monetary policy to curb soaring inflation.

In Fridays American (New York) session, the dollar index rose, surpassing 100 points for the first time in nearly two years. The highest level for USD for that day was 100.19, and that is also the highest record seen since May 2020. The dollar index closed at 99.822 on Friday, up about 1.3% on a weekly basis.

It is highly probable for the US Dollar to break and sustain above the 100 mark as long as the Federal Reserve keeps its hawkish stance on rate hikes and opens balance sheet reduction.

Over the last month, the US Dollar has gained significant bullish momentum against several currencies, and the contrast is the most evident in the EUR/USD pair which could be seen from the technical chart below (previously highlighted here: https://www.wikifx.com/en/newsdetail/202204069384198299.html).

There are a few factors that catalysed this situation, which include the hawkish message from the Federal Reserve on monetary policy tightening, new round of sanctions in Europe caused by the Russia-Ukraine war, as well as the shift in polls in favour of far-right candidate Le Pen ahead of the French presidential election, that consequently put pressure on risk sentiment, especially on the Euro.

The Fed's latest minutes (read our article on this topic: https://www.wikifx.com/en/newsdetail/202204087864194711.html) provide details of the March meeting when quantitative tightening was announced. However, the Fed's Governor, Lael Brainard asserted that the Fed is an inflation-fighting institution and is expected to over-deliver on its promises when it comes to tightening policy. As a result, the dollar is likely to maintain its dominant position ahead of the May meeting, and this will be even more evident as commodity currencies have begun to retreat.

This week, there are several high impact news to watch out for (please note that date and time are stated according to the UTC +8 time zone):

On Tuesday (12th of April) at 12.30 pm, the USA will be announcing its Consumer Price Index (CPI) m/m and Core CPI m/m. It is projected that the CPI m/m would increase by 0.4% from the previous 0.8%, whilst the Core CPI m/m is expected to remain the same at 0.5%.

On Wednesday (13th of April), New Zealand will be announcing its interest rate decision at 10 am. It is projected that the official cash rate would rise from 1.0% to 1.25%, whilst there is no consensus for the Reserve Bank of New Zealand (RBNZ) rate statement.

At 2 pm, the UK will release its CPI y/y data, which is expected to arrive at 6.7% from the previous 6.2%.

At 8 pm, America will announce its Producer Price Index (PPI) m/m which is forecasted to increase from 0.8% to 1.1%.

At 10 pm, the Bank of Canada (BOC) will announce its monetary policy report and rate statement, as well as its overnight rate which is expected to jump from 0.5% to 1.0%.

At 11 pm, the BOC will also have a press conference right after its important announcements.

On Thursday (14th of April), at 9.30 am, Australia will announce its employment change and unemployment rate reports. The forecast for employment change is 30.0k from the previous 77.4k whereas its unemployment rate is expected to drop from 4% to 3.9%. At 7.45 pm, the European Central Bank will be announcing its main refinancing rate and monetary policy statement, followed by a press conference at 8.30 pm. At 8.30 pm, the United States will release its Core Retail Sales m/m and Retail Sales m/m reports. The Core Retail Sales data is expected to jump from 0.2% to 1% whilst the Retail Sales data is expected to arrive at 0.6% from the previous 0.3%.

The 15th of April is Good Friday, thus New Zealand, Australia, Swiss, UK, German and Canadian banks will be closed on this public holiday.

<WikiFX Malaysia Original: Editor – Fion>