Advanced filters
Job Role:
Content Type:
Job Role:
Content Type:

Market Briefing: Risk Appetite Improves as Inflation Fears Subside

CalendarApril 4, 2023

Currency markets are pushing higher this morning, with risk-sensitive currencies advancing against their safe-haven counterparts - particularly against the dollar - even as background uncertainty levels remain elevated.

Oil prices remain roughly 8.5 percent higher after the OPEC+ group of exporting countries said on Sunday it would cut output by a collective 1.66 million barrels a day - and calendar spreads suggest that traders expect market conditions to tighten into the back half of the year.

But longer-term inflation expectations seem to be falling. Treasury yields dropped during yesterday’s session after the Institute for Supply Management said manufacturing activity had slumped to a three-year low, pushing all sub-indexes into contractionary territory for the first time since 2009. Both the two- and ten-year instruments are below levels that prevailed prior to the OPEC+ announcement, suggesting that markets are now more worried about growth than a oil-led increase in overall price levels.

Canada’s loonie is strengthening, but is hardly exhibiting the characteristics familiar to those of us old enough to remember its reputation as the preeminent petrocurrency. A 1.2 percent gain against the dollar has accompanied an 8.5 percent jump in crude benchmarks, with traders remaining focused on a widening in interest differentials against the currency as the Bank of Canada stays sidelined. But we think there’s room for some upside in the short term, with seasonal optimism combining with a relatively favourable commodity price backdrop to bring the 200-day moving average - currently sitting at 1.3380 - into prospect.

The British pound is trading near an eight-month high, rallying as the dollar weakens and a combination of elevated inflation and better-than-expected performance in the UK economy bolsters bets on further tightening from the Bank of England. Markets are positioned for at least two more quarter point interest rate increases by September, and technical momentum suggests the currency could kick all the way up to the 1.30 level against the dollar in coming months.

The euro is also climbing on an improvement in interest differentials, with the European Central Bank expected to hike rates at least once more in coming meeting before staying on hold for a prolonged period of time. The Federal Reserve, in contrast, is generally seen likely to deliver another increase in early May, before cutting twice in the back half of the year.

Australia’s dollar is weaker after the central bank left its cash rate unchanged. After raising rates by 350 basis points in less than a year, Governor Lowe said “The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook in an environment of considerable uncertainty… the Board recognizes that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt”. The Reserve Bank maintained a modestly-hawkish tightening bias, warning markets that “some further tightening of monetary policy may well be needed” to bring inflation down to target, but the language was softer than many traders had expected, and yields on the front end of the curve ratcheted slightly lower.

The US will release its latest job openings, layoffs, and turnover numbers at 10 am Eastern. Economists think there were 1.82 job openings per unemployed worker in February, with overall labour markets remaining extraordinarily tight even as layoffs in the technology sector dominate headlines. Updated data on shipments, inventories and manufactured product orders - released at the same time - could also move markets, with investors looking for confirmation of the weakness exhibited in yesterday’s purchasing manager surveys.




Upcoming Events


AUD Reserve Bank of Australia Rate Decision

GBP    Bank of England Speech, Tenreyo

USD    Job Openings and Labor Turnover Survey, February

GBP    Bank of England Speech, Pill

USD    Federal Reserve Speech, Mester

NZD    Reserve Bank of New Zealand Rate Decision

AUD    Reserve Bank of Australia Speech, Lowe


EUR S&P Global Eurozone Composite Purchasing Manager Index, March Final

GBP    Bank of England Speech, Tenreyo

MXN    Consumer Price Index, March

MXN    Bi-Weekly Consumer Price Index

USD    ADP Employment Change, March

USD    Trade Balance, February

USD    S&P Global US Composite Purchasing Manager Index, March Final

USD    Department of Energy Weekly Inventories

AUD    Reserve Bank of Australia, Financial Stability Review

CNY    Caixin China Purchasing Manager Index Services, March

CNY    Caixin China Purchasing Manager Index Composite, March


INR Reserve Bank of India Rate Decision

CAD    Employment, March

USD    Weekly Jobless Claims

USD    Federal Reserve Speech, Bullard

USD    Baker Hughes Weekly Rig Count


USD Non-Farm Payrolls, March 


Karl Schamotta

Karl Schamotta

Chief Market Strategist

Gain insights into developments in global currency graphSubscribe