Foreign exchange trading reminder: ISM data weighs on the US dollar, the Federal Reserve Bank of Australia resolution is coming, and the Australian dollar may welcome more than 100 points

Beijing time on April 4th Asian morning, the dollar index fell slightly, currently trading around 102.06. The dollar fell sharply on Monday, giving back the gains recorded after OPEC + unexpectedly further cut earlier. The market expects the Reserve Bank of Australia to maintain stability on Tuesday, but Deutsche Bank believes that if it emphasizes the possibility of further interest rate hikes and the next data released as evaluation conditions, it will weaken the interest rate cut expectations and benefit the Australian dollar. Scotiabank believes that the euro will reach 1.10-1 against the dollar in the second half of this year. Deutsche Bank believes that there is still time to prepare for the rise of the yen.

On April 4, Beijing time, the Asian market morning, the dollar index fell slightly, and is currently trading around 102.06. The dollar fell sharply on Monday, reversing gains recorded after OPEC + unexpectedly further cut earlier. Data showed that the US economy continued to slow, ISM manufacturing activity and construction spending fell. Monday's data added to the suggestion that the Federal Reserve is nearing the end of its rate hike cycle. These conditions have all become factors weighing on the dollar.

Francesco Pesole, an analyst at ING, said in a note that the dollar rose to a one-week high as oil prices surged following the surprise OPEC + announcement, pushing up expectations of a Fed rate rise amid renewed inflation fears. "All of this adds to fears that inflation will prove to be a more persistent problem for the Fed," he said. "The volatile pricing of the Fed's interest rate path in the market will again be one of the most affected factors." He noted that the dollar would rise as the market "caught up" with US interest rate expectations.

However, OPEC's impact was short-lived, with investors focusing on monetary policy and the differences between the Federal Reserve and other central banks, particularly the European Central Bank.

Shaun Osborne, chief foreign exchange strategist at Scotiabank, said: "Our current view is that,We may see a peak in the dollar at some point in the yearThat's based on the idea that peak inflation means peak Fed rates, which means peak dollar. But it's very likely that we may see this sooner than predicted. "

U.S. manufacturing activity fell to its lowest level in nearly three years in March as new orders continued to contract, economic data showed on Monday. The Institute for Supply Management (ISM) said the manufacturing purchasing managers' index (PMI) fell to 46.3 in March from 47.7 in February, the lowest since May 2020. U.S. construction spending also fell, falling 0.1 percent in February after rising 0.4 percent in January. The dollar extended its decline after Monday's data.

On Monday, the Fed funds futures market put a 65% chance of the Fed raising rates again by 25 basis points in May. Futures traders also factored in the possibility of a pause in rate hikes in June and a rate cut in December.

The Australian dollar hit a one-month high of 0.6792 against the dollar earlier on Monday, closing up 1.50% at 0.6784. The Reserve Bank of Australia will hold a policy meeting on Tuesday. The market sees an 85% chance that the central bank will keep interest rates unchanged after 10 rate hikes.

Deutsche Bank economists believe that after a total of 350 basis points of interest rate hikes, the Reserve Bank of Australia will definitely stop raising interest rates temporarily, waiting for the quarterly price index and the next labor market report results.However, the Reserve Bank of Australia is likely to stress the possibility of further interest rate hikes, and the next release of data as a condition for assessment, which will weaken market interest rate cut expectations. If the meeting results in line with this forecast, the Australian dollar will undoubtedly benefit from it。

The chief executive of Spectra Markets said it might take a hawkish meeting of the Reserve Bank of Australia on April 4 to finally wake up the Aussie from its slumber. If Australian interest rates start to rise, the Aussie dollar could reach 0.6900 in an instant.

Earlier on Monday, the euro hit a one-week low of 1.0787 against the dollar before rising in late trading and closing up 0.48% at 1.0894.

Francesco Maria Di Bella, fixed income strategist at UniCredit Research, said the ECB is expected to act more cautiously due to recent volatility in financial marekts.May will raise deposit rates by 25 basis points instead of 50 basis pointsHe said in a report that the ECB is expected to raise interest rates by another 25 basis points in July and September, bringing the deposit rate to 3.75%. Money markets are currently pricing in the ECB to raise interest rates by about 61 basis points.

Mr. Osborne at Scotiabank said: "While the Fed is likely done or close to done, we will see the ECB tighten up a bit more.Therefore, we believe that EUR/USD will reach 1.10-1 in the second half of this year.。”

The dollar fell as low as 132.1 against the yen on Monday before closing down 0.33 per cent at 132.37 after touching its highest level since around mid-March.

Ulrich Leuchtmann, head of FX and commodities research at Deutsche Bank, has analysed the next BoJ interest rate decision. Leuchtmann believes it would be desirable if the BoJ could communicate a possible policy reversal to the outside world very gradually. But it is easier said than done. All BoJ watchers are likely to weigh every word of the new BoJ official very carefully and try to interpret from it whether we will see a change in direction. This makes "incremental communication" almost impossible.

He believes the situation will become "volatile" for all market participants with yen exposure, especially around the Bank of Japan meeting.The next interest rate decision will be held at the end of this month, which is also the first meeting of the Bank of Japan after the leadership transition, so there is still time to prepare for the yen's rise。

Sterling rose sharply against the dollar on Monday, hitting a high of 1.2425 before closing up 0.62% at 1.2407. The improved economic outlook for the UK has become a key positive for the pound.

Deutsche Bank UK economist Sanjay Raja said in a report that the UK's final GDP growth rate in the fourth quarter of 2022 is revised up from the previous value, which will have a positive impact on the country's economic growth in 2023. The positive carry-over effect will add more supportive base effects to 2023. Deutsche Bank's updated 2023 model now predicts that the UK's GDP will not contract this year, but instead stagnate at 0% growth. Raja added that the current consensus of a 0.4% contraction in the UK economy is slowly catching up.

The euro closed up 0.48% against the dollar on Monday at 1.0894.

European Central Bank Governing Council Member Holtzmann said,If the turmoil hitting the global banking system does not worsen, the ECB is "still likely" to raise another 50 basis pointsHe conceded that the chain of events triggered by the collapse of Silicon Valley banks could have the same effect as a rate hike by curbing credit, but said he felt the rate hike was still going to stick. If things don't get worse in May, then Europe can afford another 50 basis points of rate hikes, especially if there are no signs of easing inflation and central banks will have to do more to curb inflation.

His comments were among the most specific on what the ECB might do next, with most of his colleagues cautious about making predictions amid such high uncertainty.

This week's focus will be on Friday's U.S. jobs report, but many markets will be closed for the Easter holiday.

Tuesday's key data and events