Foreign exchange trading reminder: the dollar rebounds but the weak outlook remains unchanged, if the Bank of Japan takes action, the United States and Japan cannot escape the fate of falling

On April 6, Beijing time, the Asian market morning, the US dollar index (101.9886, 0.0942, 0.09%) rose slightly, and is currently trading around 102.02. The US dollar rose on Wednesday, recovering from the two-month low hit in the previous trading session, as investors cut short positions to lock in profits ahead of the release of the important US non-farm payrolls report on Friday. However, the underlying trend of the US dollar remains tilted to the downside, and Wednesday's US private employment data also confirmed this. The employment data supports the view that the Federal Reserve may not need to raise interest rates further. The US dollar index closed up 0.31% at 101.91 on Wednesday.

Investors are watching the March non-farm payrolls report due on Friday, with economists interviewed expecting about 240,000 new jobs.

Erik F. Nelson, a macro strategist at Wells Fargo, said that for now, "the threshold for the dollar to continue falling is high." He noted that the dollar tracks U.S. Treasury yields, which have been extremely volatile in recent weeks.

U.S. two-year Treasury yields, which reflect interest rate expectations, fell nearly 74 basis points in March, the worst monthly decline since January 2008, in the midst of the global financial crisis.

"We need to see continued weakness in the data because part of the dollar weakness we see comes from falling US interest rates and the possibility of a Fed rate cut," said Mr. Nelson. "If the US data doesn't confirm that, then the dollar could be more resilient than expected." But he clarified that he remained bearish on the dollar, but noted that the dollar's move would be more of a "slow decline" than a direct downward trend reflecting months of selling.

Private employers in the United States hired fewer workers than expected in March, the ADP national jobs report showed on Wednesday, indicating a cooling labor market. Private jobs rose by 145,000 last month, while economists interviewed by Reuters had predicted a gain of 200,000. The data came after Tuesday's report showed a decrease in job openings in February and followed weakness on Monday in the Institute for Supply Management's U.S. Manufacturing Survey, which also reflected weakness in the employment sector.

A separate report on Wednesday also pointed to continued weakness in the economy, this time in the services sector, which slowed more than expected in March as demand cooled, while prices that measure what service firms pay fell to their lowest point in nearly three years. The ISM non-manufacturing index fell to 51.2 last month from 55.1 in February, while input prices fell to 59.5 from 65.6 in February, and the employment indicator for services also slipped to 45.8 from 47.6 in February.

Thierry Wizman, global currency and rates strategist at Macquarie in New York, said: "There is a lot of evidence that de-inflation is the underlying trend... and part of the reason the Fed is sounding ambiguous these days."

Cleveland Fed President Mester, a well-known hawk, said in an interview on Wednesday that it was too early to know whether the Fed would need to raise its benchmark interest rate at its next policy meeting in early May. 

The U.S. interest rate futures market is now pricing in a 55% chance that the Federal Reserve will leave rates unchanged at its next meeting, up from 43% a day ago. The market also priced in the possibility of a rate cut of about 85 basis points before the end of the year. The dollar fell for three straight days against the yen (131.15, -0.1300, -0.10%) on Wednesday, and finally closed down 0.30% at 131.30.

Danske Bank expects the Bank of Japan to adjust its yield curve control (YCC) in the second quarter and may raise its policy rate by 10 basis points to 0%. Overall, the USD/JPY seems fundamentally overvalued, and with base expectations for the Bank of Japan to tighten monetary policy in the second quarter, the pair is expected to fall to 125 in three months. 

The Australian dollar (0.6705, -0.0015, -0.22%) closed 0.53% lower at 0.6714 against the dollar on Wednesday. The Reserve Bank of Australia kept interest rates unchanged at 3.6% on Tuesday after 10 consecutive rate hikes, saying it needed more time to assess the impact of past rate hikes. The New Zealand dollar rose as much as 1.1% to a two-month high of 0.6378 against the dollar after the Reserve Bank of New Zealand unexpectedly raised interest rates by 50 basis points to a more than 14-year high of 5.25% on Wednesday. The New Zealand dollar finally closed up 0.11% at 0.6316 against the dollar on Wednesday. The euro (1.0892, -0.0013, -0.12%) closed down 0.43% at 1.0899 against the dollar on Wednesday. However, the European Central Bank's interest rate hike expectations limit the euro's downside. 

On April 5, Robert Holzmann, a member of the European Central Bank's governing council, said that if the turmoil rocking the global banking system does not worsen, the European Central Bank may still raise interest rates by another 50 basis points in May.

Thursday's key data and events