It’s going to be a hectic day. The Financial Stability Report and the NZ Employment Report will be released by the Reserve Bank of New Zealand on Wednesday morning. Retail Sales for March and the Construction and Services PMI are released in Australia. The Fed’s decision is today’s big show. Additionally crucial is ADP’s report on the labor market.
On this Wednesday, May 3, this is what you should know:
After Tuesday’s dramatic drop in stock prices on Wall Street and Wednesday’s big fluctuations in the currency markets, volatility is expected to stay high. Even if First Republic Bank was acquired, investors still have banking worries, as seen by the decline in share price of two regional banks. The Federal Reserve’s (Fed’s) decision is the most important thing happening on Wednesday. Investors anticipate a rate rise of 25 basis points. The announcement and Chair Powell’s news conference are the main events.
Despite a flight to safety throughout the American session, the US Dollar Index ended the day in the red. US Treasury bonds rallied, sending the DXY down from three-week highs to below 102.00. US 10-year yields plummeted by over 4% to 3.42%, while 2-year yields went below 4%. Bets on a rate decrease from the Fed in the fourth quarter rose after the publication of US data (JOLTS and Durable Goods Orders).
After deliberating for two days, the FOMC is widely predicted to increase the Fed Funds rate by 25 basis points, taking it from 4.75% to 5.25% on Wednesday. This would be the same as the high in 2007. No new forecasts will be released. The announcement and later Chair Powell’s news conference will be the main focus of market players. ADP will publish its private employment data before the Fed makes its decision.
Brown Brothers Harriman strategists penned:
‘’We anticipate that major central banks will not begin relaxing policy until at least 2024. Period. We remain convinced, in particular, that the markets are wrong about the Federal Reserve’s ability to tighten policy and maintain it for an extended length of time. Investors who have been far too comfortable about a Fed shift should take this as a major, huge wake-up call.’’
The Euro/Dollar exchange rate jumped from weekly lows of 1.0950 to 1.1000 during the American session. In April, core inflation in the Euro area was 5.6% year over year, which was somewhat higher than expected. The European Central Bank (ECB) is scheduled to publish its monetary policy decision on Thursday, with a rate rise widely anticipated. An increase of 25 basis points is already factored in, but a 50 basis point increase is not out of the question.
With its rate hike on Tuesday, the Reserve Bank of Australia (RBA) indicated there is room for hawkish surprises as inflation stays persistently high and boosted the Australian dollar. After starting strong, the Australian dollar eventually retreated and gave up its advantage. AUD/USD jumped above 0.6700 for a short time before retreating to 0.6665. The pair’s prognosis is somewhat brighter than before, but not by much.
The New Zealand dollar climbed more against the US dollar, reclaiming the 0.6200 level. The Kiwi outperformed, with AUD/NZD reversing all RBA gains, sliding from 1.0835 to 1.0735. The Financial Stability Report from the Reserve Bank of New Zealand and the New Zealand Employment Report will both be released on Wednesday.
Overall, the Loonie fell in value, with USD/CAD rising above the 1.3530–1.3630 area of the 100-day Simple Moving Average. Lower crude oil prices, by 5%, knocked on the Canadian dollar. Crude is still under pressure because to the bleak global economic forecast.
Gold’s price rose to its highest daily close in three weeks as a result of the decrease in US rates, reaching over $2,020 per ounce. From $24.60 to $25.35, silver showed a rise. The Bitcoin to US Dollar exchange rate jumped by 3.50%, reaching $28,700.
