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USD Pares Some Gains Ahead Of May FOMC, AUD Outperforms

FOREX
  • EURUSD had a sharp squeeze as the US session commenced. The pair rallied from 1.05 to 1.0578 on the back of little news headlines, echoing the price action throughout Monday’s European session. However, strength was short-lived and the pair continues to be well offered on rallies with supportive conditions for the greenback continuing to preside over currency markets.
    • With that said the USD index trades 0.3% lower on Tuesday amid firmer equity indices and ahead of the long-awaited May FOMC decision.
  • Technically, the USD is in a clear uptrend and this was reinforced in April. The bull theme is clearly highlighted in the USD Index (DXY) chart. A number of important technical factors are evident on the monthly frequency: see latest MNI analysis for details: https://marketnews.com/dxy-candle-pattern-reinforces-bullish-conditions-2657257678
  • AUD held on to gains on Tuesday, following the RBA surprising markets overnight with a 25bps rate hike to 0.35% vs. expectations of a 15bps tweak. In the subsequent press conference, Governor Lowe flagged that the bank could raise rates as high as 1.5% by the end of 2022, and to 2.5% at a cyclical peak.
  • In response, AUD/USD settled around the 0.71 mark after rallying to just shy of 0.7150 in the aftermath of the decision.
  • The RBNZ Financial Stability Report will kick off the APAC session with Governor Orr due to hold a press conference about the report shortly afterwards. Additionally, New Zealand employment data shortly afterwards. Additionally, New Zealand Q1 Employment data will be released.
  • China and Japan remain out for local holidays before a fairly light European calendar headlined by Spanish unemployment.
  • US ADP employment data will be released on Wednesday which is unlikely to influence the market before the May FOMC decision and subsequent press conference with Governor Powell.
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