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Markets continue to grapple with a world that's becoming increasingly difficult to read, and the dollar is a prime reflection of that confusion. The latest data out of the U.S. paints a picture that’s hard to ignore a clear loss of economic momentum just as inflation expectations begin to creep higher. First quarter GDP tracking has been cut sharply to -0.8% QoQ annualized, a significant miss compared to even the downgraded consensus. Labour market data isn’t offering much reassurance either, with job openings falling faster than expected and consumer confidence slipping to levels last seen in the depths of 2020. At the same time, short-term inflation expectations are edging up, raising the uncomfortable possibility that we’re now drifting into stagflation territory.
USA GDP
The Fed remains silent for now, but the market has started to speak. Dollar demand failed to show up at month-end, and the move to fade the greenback is gaining traction across desks. Positioning has shifted in favour of liquid alternatives the euro, yen and pound all look increasingly attractive, especially with their domestic outlooks looking relatively more stable.
Tech Jitters and the Erosion of Safe-Haven Status
On the corporate side, the tech-heavy optimism that once helped hold up equities is beginning to fray. Super Micro’s earnings miss didn’t help, and concerns are now building over how U.S. chip exports might be hit by escalating controls. With Microsoft, Meta, Amazon and Apple all reporting this week, there’s a real possibility that sentiment could swing quickly if results disappoint. And yet, equities haven’t cracked possibly because we’re now past the peak of macro uncertainty for Q1. Still, in FX, the dollar is no longer feeling like the haven it used to be. The repricing we’re seeing isn’t just about interest rate expectations anymore it’s about a broader loss of confidence in the U.S. growth story.
Aussie CPI Surprises, but Easing Path Still Intact
Looking across the Pacific, the Australian dollar had a moment of strength following this morning’s CPI release, which came in a touch firmer than expected. The rebound was largely driven by food and energy categories, in part due to the expiry of certain government subsidies. But despite the headline beat, the broader picture remains unchanged. Inflation is still within the RBA’s target band, and core measures continue to show signs of easing.
Australia CPI
Some of the hawkish pricing in local rates has been unwound, but not completely and that might be a stretch. Goldman Sachs is sticking with their call that the RBA will resume cutting in May, with more easing to follow in the months ahead. The labour market is still tight, but it’s not overheating, and the inflation pulse simply isn’t strong enough to warrant a shift in tone. Given this, the Aussie’s recent strength feels more tactical than structural especially when risk sentiment is still fragile and global equities are mixed.
RBA Rate Track
China’s Quiet Balancing Act
Meanwhile, China is back in focus after the latest round of PMI data showed a clear loss of momentum in the manufacturing sector. Both official and Caixin surveys dropped more than expected, with new export orders taking a particularly hard hit. That subcomponent tends to lead actual export volumes by a few months, which means China’s trade performance could deteriorate further into Q2.
Despite this, the Chinese yuan reversed initial losses, and it wasn’t just about technical flows. Beijing surprised markets by signalling it would exempt a list of U.S. goods from its 125% retaliatory tariffs. The so-called “whitelist” reportedly includes items like pharmaceuticals, aircraft engines, and semiconductors all of which are critical to China’s economy. This move suggests a more calculated approach from Beijing: standing firm on rhetoric while quietly carving out space for economic pragmatism.
There’s also a broader financial shift underway, with China’s sovereign wealth fund reportedly pulling back from U.S. private equity exposure. That’s more symbolic than systemic, but it fits into the broader trend of strategic decoupling. For now, soft CNY fixings continue, but the currency remains relatively stable even with the risks stacking up.
Waiting for Clarity
In short, we’re heading into May with markets that are re-evaluating old assumptions. The dollar is no longer a one-way bet, the Aussie looks overbought on shaky ground, and the yuan is being quietly supported by policy finesse. This is not a market for bold directional trades it’s one that rewards nuance, patience, and an eye on shifting fundamentals.
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