Dollar Heads for Best Week This Year Before CPI, Retail Sales

  • Greenback may test 115 yen on strong data, Ueda’s Ono says
  • Kiwi declines for second day as manufacturing growth slows

Retail Struggles While Consumers See a Rebound

The dollar headed for its best week this year before reports forecast to show inflation and retail sales both increased last month, backing the case for the Federal Reserve to keep raising interest rates.

The greenback has gained versus all of its Group-of-10 peers this week after payroll data and producer prices exceeded economists’ estimates. Cleveland Fed President Loretta Mester said the U.S. economy warrants gradual policy tightening, while Boston Fed chief Eric Rosengren called for three more rate hikes this year. New Zealand’s dollar fell after manufacturing growth slowed.

“Sentiment for the dollar has turned brighter and it is gaining more support on dips since the start of the week,” said Daisaku Ueno, chief foreign-exchange strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “In the longer run, the dollar is expected test its upside due to the growing likelihood of another Fed rate hike.”

  • Bloomberg Dollar Spot Index gained 0.7% this week, set for best week since period ended Dec. 16. Little changed on Friday
    • USD/JPY has risen 0.9% this week to 113.70, set for fourth weekly gain, longest stretch this year
    • Some early USD/JPY selling on Friday seen from smaller leveraged funds in view of weak Nikkei futures, according to an Asia-based FX trader
    • Markets will watch the results of U.S. CPI and retail sales, which may boost the dollar toward 115 yen should a strong outcome increase hopes for a rate hike in June, writes Naoto Ono, FX analyst at Ueda Harlow in Tokyo
  • NZD/USD falls 0.2% Friday to 0.6838 after slipping to 11-month low of 0.6818 Thursday
    • Performance of Manufacturing Index falls to 56.8 in April from revised 58; April home sales -31% y/y vs -10.7% y/y March
    • “Weakness in the New Zealand dollar looks to be a continuation and further adjustment in FX and rates markets following yesterday’s surprisingly more dovish than expected RBNZ meeting,” says Peter Dragicevich, FX strategist at Nomura Singapore
    • NZD/USD remains offered on rallies as macro funds buy AUD/NZD, says an Asia-based FX trader; ex-Asia funds are also trying to sell kiwi between 0.6860/80 on rally, trader says
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