Daily Market Outlook, April 14, 2022

Overnight Headlines

Asian equity markets are mostly higher this morning following gains on Wall Street yesterday. Reports that China plans to loosen monetary policy may have supported sentiment. The US announced $800mn of additional military aid for the Ukraine. Meanwhile, the EU warned members that complying with Russian demands for its gas to be paid for in roubles would violate sanctions. The March Australian labour market report showed the unemployment rate unchanged at 4.0% and a smaller-than-expected employment gain.

In contrast to yesterday’s central bank announcements, where both Canada and New Zealand raised interest rates, today’s European Central Bank update is not expected to result in any immediate policy change. Nevertheless, markets will be looking for indications over the potential timing of a rate increase from the ECB.

At the last update, ECB President Lagarde announced a pivot of monetary policy in a more hawkish direction with asset purchases set to be tapered from Q2 and likely ending by early in Q3. That potentially opens the way for a rate rise in the second half of the year and markets are discounting a Q3 hike although many economists think a December move is more likely. The ECB faces a particularly acute policy dilemma as inflation is well above its target and still rising but the Eurozone is seemingly particularly vulnerable to downside growth risks resulting from the Ukrainian crisis. It seems that the more hawkish voices on the rate-setting council are prevailing for now and a rate increase will be forthcoming. Nevertheless, Lagarde seems set to hedge her bets today and not offer any new detail on the policy outlook.

US March retail sales are expected to be up but that will probably be due to higher prices as the numbers are not adjusted for inflation. In real terms, sales are forecast to be down on the month, although that does follow sizeable gains earlier in the quarter and may be in part due to consumers switching to spending on services as Covid concerns recede. While Fed officials currently seem much more concerned about upside inflation risks, there are signs that consumer spending power is being eroded by high inflation and that consumer confidence is slipping. Today’s update of the University of Michigan consumer sentiment measure for April is predicted to show another fall.

Most markets will be closed tomorrow for the Easter holidays. However, US industrial production data for March will be released and is predicted to show a rise driven in part by higher oil output. The New York Fed’s survey will also provide some preliminary indications on April trends.

EURUSD Bias: Bearish below 1.12 Bullish above

GBPUSD Bias: Bearish below 1.3350 Bullish above.

USDJPY Bias: Bullish above 120 Bearish below

AUDUSD Bias: Bullish above .7300 Bearish below

Bid tone in Asia as USD and US yields edge lower
AUD/USD opened unchanged at 0.7453 and moved higher from the open
Talk of EUR/AUD selling helped push the AUD/USD to 0.7468
Aus jobs data came in slightly worse than expected and AUD/USD slipped to 0.7450
US yields moved lower and the AUD/USD traded back to 0.7467
Heading into the afternoon the AUD/USD is trading around 0.7455/60
Resistance is at the 21-day MA at 0.7477 and 10-day MA at 0.7484
Bids are tipped at 0.7440 with support at yesterday's 0.7392 low
Moves in US Treasury yields driving the price action at present
There is a growing view that US yields and US inflation may be peaking in short-term