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The resurgence of the US dollar in 2024 persists, driven by robust jobs data and resilient inflation. Expectations for a full Fed rate cut have shifted to June, leading to the USD reaching three-month highs against currencies like AUD and JPY. The upcoming post-holiday sentiment in China will be crucial for AUD, but if the market sentiment leans towards stable Fed rates in the first half of the year, AUD may revisit its lows from 2023.
US NFP Jan
Strategic Outlook for USD: Next week's calendar appears thin, with key events including Jan FOMC minutes on February 21 and S&P preliminary Feb PMIs on Thursday. The major data release, Jan PCE, is scheduled for February 29.
Event Risks: DXY's impressive 4%+ gain this year remains strong. The bulk of these gains occurred during key data and event sessions, such as retail sales, payrolls, CPI, and the Jan FOMC. Outside of these sessions, price action has been consolidative. Despite entrenched expectations of a 2024 rate cut, occasional hawkish repricing has been triggered by strong data and hawkish Fed speak, resulting in notable adjustments. A light calendar after retail sales until the end of February is anticipated to keep DXY trading sideways, in line with the 2024 trend.
Looking ahead, DXY may establish a more consistent daily bullish trend, driven by expectations of a hawkish March FOMC. Activity data has impressed since the Dec FOMC, and early Q1 GDP nowcasts exceeding 3% would surpass the implied pace in the Fed's conservative 2024 forecast of 1.4%. Sticky inflation raises the possibility that some 2024 rate cut expectations could shift upwards at the March FOMC.
DXY is expected to find support around 104.00, and a move towards 105+ is deemed achievable as attention shifts to the March FOMC in the coming weeks.
Insights Inspired by Westpac: Credit to Their Analysis for Shaping Some Aspects of This Text
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