Market Drivers – US Session – 25 April

US equities were able to impressively recover in the latter hours of US session. The dominant force in currency markets on Monday remained risk-off, with traders citing China lockdown concerns as the major driver. Amid a sharp pullback in global bond yields as traders reassessed global growth prospects amid the rising risk of a wider shutdown of the world’s second-largest economy, the rate-sensitive safe-haven yen was the best performing G10 currency.

Economic Data
The North American trading session witnessed no significant economic data on Monday.

Other Developments
Markets are about to embark on the busiest week of Q1 earnings season yet, with some of the top household names, including Microsoft MSFT, Meta (nee Facebook) FB and Amazon AMZN, among hundreds of others. We also expect to see a big load of economic data this week, which will help inform the Fed when it meets on monetary policy next week.

Among the more important metrics will be updated are: Durable Goods Orders, Advance Trade in Goods, Case-Shiller Home Prices, New & Pending Home Sales, the PCE Price Index, Consumer Confidence, University of Michigan Consumer Sentiment, Weekly Jobless Claims and the first read on Q1 GDP. That’s a lot of grist for the mill, and may offer some hope that better-than-expected headlines might help market sentiment break a weeks-long losing streak on the major indices.

CAD may have been assisted by hawkish remarks from BoC Governor Tiff Macklem on Monday, who reiterated the need for higher interest rates to tackle inflation, suggested a 50 bps rate hike at the next meeting was likely and even floated the possibility of a 75 bps hike. Either way, USD/CAD looks set to end the day in the low 1.2700s having fallen back from the upper 1.2700s and NZD/USD recovered from a brief dip under 0.6600.

USD/JPY dropped back to the 128.00 area, with the pair now more than 1.0% below last week’s multi-decade highs above 129.00. The safe-haven US dollar also benefited as a result of risk-off flows and was the second-best performing major G10 currency, with the Dollar Index (DXY) hitting fresh highs since March 2020 in the upper 101.00s.

The jump in the DXY, which is a trade-weighted basket of major USD currency pairs, was mainly a function of weakness in GBP/USD and EUR/USD as a result of risk aversion. The former at one point dropped under 1.2700 for the first time since September 2020 but was last trading down 0.7% in the 1.2730s, while EUR/USD was down a similar margin just above 1.0700 and also at fresh multi-month lows. Any euro relief in wake of French President Emmanuel Macron’s re-election did not last.

The worst performing of the major G10 currencies was the Aussie, with AUD/USD last trading down about 0.9% in the 0.7175 region, after having been as low as the 0.7130s earlier in the day, its lowest levels since late February. A steep drop in energy, industrial and precious metal prices weighed heavily on the commodity export-dependent Aussie, as did concerns about Chinese lockdowns, given China’s status as Australia’s most important export destination. The commodity-sensitive NZD and CAD held up better, depreciating a respective 0.3% and 0.1% each versus the USD.

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