As the USD rallies this morning across the currency space, some investors are wondering whether the US dollar index is poised for a rally in May. It’s typical to see the US dollar decline in April on an aggregate basis, at least that’s been the trend over the last 10 years. Like the ebb and flow of the tide, the weakness in April has typically been followed by a rally in May. On average, April typically has the largest monthly decline and May has the biggest gain. This of course doesn’t guarantee a rally this month, but could point to positive momentum for the greenback.
UK retail sales rebounded in April after a soggy March according to a BRC–KPMG retail sales monitor. A late Easter helped boost consumer spending to the biggest monthly gain in eleven years, moving from a negative one percent decline in March to a 5.6% increase in April – investors were expecting a tepid increase of just 0.5%. The surprise wasn’t enough to inflate sterling, which remains on the backfoot against a stronger USD. Rising costs from a weaker currency paired with slow wage growth are likely to continue weighing on UK consumers, a precarious element that the Bank of England is keenly aware of.
Elections in the west have been hotly watched, but today South Korea took to the polls to elect a new president. Liberal Moon Jae-in has come out on top of exit polls to take over after the contentious ousting of former President Park Geun-hye. President Park’s corruption scandal erupted last year, provoking the largest demonstrations in Seoul since the 80s when the people marched for democracy. This vote is key given heightened tensions with North Korea and economic uncertainty. President-elect Moon is open to a dialogue with North Korea, a large departure from his predecessor, a savvy move to investors if price action is telling us anything. A sustained decline in the Japanese yen today indicates less concern for geopolitical risk, and thus no need to pile into safe haven yen and gold.
Australian dollar came under more pressure this morning for two reasons, the first and foremost is iron ore. Against the general pressure on commodities right now, iron stands out as one of the worst performers. Taking hits both on cheap supply flooding in from countries like Brazil and China moves to rein in leverage where demand is already waning. The risk that an increasing supply of iron ore will overwhelm demand has investors scaling back their bets on iron futures which is putting further pressure on AUD. Secondly, domestic data isn’t hitting estimates; the federal budget deficit was AUD $1.4 billion higher than anticipated and retail sales came in well below expectations in March, declining -0.1% from a month prior when analysts were looking for a 0.3% increase. Overall, this paints a troubling picture for the RBA who recognized some domestic weakness in their last meeting.
EURUSD: Euro weaker against the greenback as the dollar edges higher.
GBPUSD: A positive retail sales reading did little to inflate the pound. As Aesop would say: one swallow does not a summer make.
AUDUSD: Aussie dollar caving once again to deteriorating iron ore prices tied to domestic data misses.
USDCAD: Both declining oil prices and a stronger USD continue to weigh on CAD, which is down again today to total over 2.3% lower against the greenback from a month prior.
USDJPY: As risk appetite grows the yen continues to weaken, sitting at the bottom of the deck of major currencies vs. the USD this morning.