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• The oil price is looking to extend its rally further above $72.00 as Fed is expected to pause rate hikes ahead.
• April’s US Employment report indicated that the Fed won’t be in a hurry in hiking interest rates further in June.
• An unexpected drop in China’s factory orders could act as a headwind to the oil price.

West Texas Intermediate (WTI), futures on NYMEX, are gathering support for extending a rally above the crucial resistance of $72.00 in the early Tokyo session. The oil price has attracted bullish traction as various central banks along with the Federal Reserve (Fed) are considering an end to their policy-tightening spell to avoid further damage to their respective economies.

Investors are anticipating that no more interest rate hikes from the Fed would support producers’ confidence and would assure recovery in economic activities. The release of April’s US Employment report indicated that the Fed won’t be in a hurry in hiking interest rates further in June. The impact of higher employment additions faded after March’s job additions of 263K were downwardly revised to just 165K.

The absence of any juggernaut addition of fresh talent into the US labor market indicates that the demand for fresh labor is easing, which would soften inflationary pressures ahead. Also, the current monetary policy is sufficiently restrictive and weighs heavily on the economy.

Apart from that, the European Central Bank (ECB) slowed down their pace of interest rate hike to 25 basis points (bps) as credit disposals by European banks have dropped sharply.

Meanwhile, In China, however, factory activity contracted unexpectedly in April as orders fell and poor domestic demand dragged on the sprawling manufacturing sector, as reported by Reuters, which could act as a headwind of the oil price.

Going forward, investors will keep focus on potential US banking jitters and the meeting of US President Joe Biden with Speaker Kevin McCarthy and other congressional leaders on Tuesday's looming debt ceiling talks. Interested parties are expected to negotiate as Republicans conveyed that an increase in the debt ceiling would come at a cost of the President’s spending initiatives when met last in February.

Australia's centre-left Labor government said on Monday it would include A$14.6 billion ($9.84 billion) over four years in the federal budget for cost of living relief for families and businesses, which it promised would not stoke inflation.

The news also highlights the Reserve Bank of Australia’s (RBA) Friday’s warning that risks to inflation were on the upside given low productivity growth, rising energy prices and a surge in rents.

While conveying the hints for the Tuesday's federal budget, Treasurer Jim Chalmers said, “The centrepiece of the budget ... will be cost-of-living relief that doesn't add to inflation."

The policymaker also adds that people are under the pump. We've carefully calibrated and designed this Budget so that it takes pressure off the cost-of-living rather than add to it.

Additional details

Chalmers has repeatedly stated his budget would be restrained on spending so as not to add to inflationary pressures, while also giving some relief, after the Reserve Bank of Australia (RBA) last week stunned markets with a rate rise, defying trader expectations for an extended pause.

The latest relief measures come after the government set aside A$11.3 billion for wage rises for aged care workers over four years, while announcing an additional 5% tobacco tax and A$2.4 billion in more tax on oil and gas producers.

Australia's deficit is expected to shrink sharply, the budget is expected to show, as its coffers bulge with tax windfalls from commodity exports, yet the outlook will be a sober one as fiscal challenges loom.

Also read: AUD/USD aims to surpass 0.6750 as Fed to pause hiking rates despite solid US labor market

• US Dollar Index picks up bids to pare recent losses after two-week downtrend.
• Friday’s US NFP came in firmer but revisions disappointed DXY bulls; Fed’s Bullard backs more rate hikes.
• Looming fears of US debt ceiling expiration, banking crisis put a floor under US Dollar price.
• US CPI for April, survey on US banking lending practises and current conditions will be eyed for clear directions.

US Dollar Index (DXY) rebounds from short-term key support as it consolidates losses made in the last two weeks around 101.35 early Monday in Asia. In doing so, the greenback’s gauge versus six major currencies benefits the latest hawkish Fedspeak and challenges market sentiment. Also keeping the DXY buyers hopeful is the cautious mood ahead of this week’s US inflation data and a survey report on the US banking lending practices and current conditions.

DXY failed to cheer the upbeat US employment report for Friday as the higher prints of Nonfarm Payrolls (NFP) failed to divert the market’s attention from downwardly revised prior readings. That said, the US Bureau of Labor Statistics (BLS) unveiled a jump in the headline Nonfarm Payrolls (NFP) by 253K expected and revised down prior readings of 165K. Further, the Unemployment Rate also eased to 3.4% versus 3.5% market forecasts and the previous mark whereas Average Hourly Earnings improved to 4.4% YoY from 4.3% prior (revised) and analysts’ estimations of 4.2%.

Following the upbeat US employment report, St. Louis Federal Reserve President James Bullard, who supported the 25 basis point rate hike that the Fed took last week, called it "a good next step." The policymaker cited significant amount of inflation in the economy and "very tight" labor market to back his hawkish bias.

It should be noted, however, that Federal Reserve’s (Fed) dovish rate hike poured cold water on the face of DXY optimists in the last week.

Recently, US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness, per Reuters.

Elsewhere, US Senior Loan Officer Opinion Survey on Bank Lending Practices is up for release during the week and will be eyed for the banking crisis update as markets fear grim US bank conditions, which in turn can prod the sentiment and allow the US Dollar to lick its wounds.

Amid these plays, Wall Street closed positive and the US Treasury bond yields recovered on Friday. However, the bond coupons remain depressed and exert downside pressure on the US Dollar Index ahead of the key week comprising the US inflation data for April.

“With respect to the looming April CPI release, the consensus expects that headline CPI rose 0.4% m/m with core up 0.3% m/m. For what it’s worth, the Cleveland Fed’s inflation Nowcast estimates April headline inflation rose 0.6% m/m with core up 0.5% m/m. If the April inflation data are strong, then there is a growing probability that the FOMC will have to revise up its end 2023 inflation forecasts,” said ANZ.

Technical analysis

US Dollar Index (DXY) bears need validation from a three-week-old ascending support line, near 101.20 by the press time, to challenge a yearly low of around 100.80. That said, the MACD signals suggest that the DXY bulls are running out of steam.

• USD/CAD is eyeing more weakness below 1.3370 as Canada’s upbeat job data might force the BoC to reconsider the policy pause.
• Firmer oil prices and an upbeat Canada’s job market have supported the Canadian Dollar.
• US President Joe Biden is scheduled to meet Speaker Kevin McCarthy on Tuesday to talk about the looming debt ceiling crisis.

The USD/CAD pair has found an intermediate cushion after a massive sell-off to near 1.3370 in the early Asian session. The Loonie asset is expected to extend its downside journey as oil prices have strengthened further on expectations that the Federal Reserve (Fed) will pause its policy-tightening spell and strong Canada’s labor market data renewed fears of more interest rate hikes from the Bank of Canada (BoC).

As per Canada’s labor market report (April), Net Change in Employment landed at 41.4K vs. the estimates of 20K. The Unemployment Rate dropped to 5.0% from the expectations of 5.1%. Annual Average Hourly Earnings remained steady at 5.2%.

The US Dollar Index (DXY) has shown some recovery around 101.20 as US President Joe Biden is scheduled to meet Speaker Kevin McCarthy and other congressional leaders on Tuesday to talk about the looming debt ceiling crisis.

USD/CAD is auctioning in a Symmetrical Triangle chart pattern on a daily scale, which indicates sheer contraction in volatility followed by an expansion in the same. The downward-sloping trendline of the aforementioned chart pattern is plotted from 10 October 2022 high at 1.3978 while the upward-sloping trendline is placed from 15 November 2022 low at 1.3226.

Broadly, the 20-period Exponential Moving Average (EMA) at 1.3500 is overlapping the Loonie price, indicating a decline in volatility.

The Relative Strength Index (RSI) (14) has dropped marginally below the bearish range of 20.00-40.00 and sustenance below the same would accelerate bearish momentum.

Going forward, a breakdown below the previous week’s low at 1.3371 will drag the asset toward April 17 low at 1.3343 followed by the round-level support at 1.3300.

On the flip side, a recovery move above April 10 high at 1.3554 will drive the Loonie asset towards January 05 high at 1.3595. A breach of the latter will drive the asset toward April 26 high at 1.3651.

USD/CAD daily chart                                                  

• NZD/USD picks up bids reverse the previous day’s pullback from one-month high.
• Bullish oscillators, sustained break of 100-DMA favor Kiwi pair buyers.
• Descending resistance line from February appears the key upside hurdle.
• One-week-old upward-sloping trend line adds to the downside filters.

NZD/USD rises half a percent to lead the G10 currency pair gainers during early Monday. That said, the Kiwi pair buyers poke the 0.6300 round figure while reversing Friday’s U-turn from the highest levels since early April.

The quote’s strength could be linked to a successful upside break of the 100-DMA, as well as bullish MACD signals and an upbeat but not overbought RSI (14) line.

With this, the NZD/USD bulls are all set to prod a downward-sloping resistance line from February close to 0.6320 by the press time.

Following that, the pair buyers can aim for the 61.8% Fibonacci retracement level of its February-March downside, near 0.6365.

However, a three-month-old horizontal resistance area surrounding 0.6385-90, quickly followed by the 0.6400 round figure, could challenge the NZD/USD bulls afterward.

On the contrary, a daily closing below the 100-DMA level of around 0.6275 isn’t a welcome sign for the NZD/USD bears as a one-week-long ascending trend line joins the 38.2% Fibonacci retracement level to limit the pair’s short-term downside near 0.6260.

In a case where the NZD/USD pair drops below 0.6260, the odds of witnessing a quick fall toward the 0.6200 round figure can’t be ruled out.

NZD/USD: Daily chart

Trend: Further upside expected

• Gold price is aiming to extend its recovery above $2,020.00 as US NFP report seems less supportive of hawkish Fed bets.
• A scrutiny of the US labor market report showed that March’s labor additions were downwardly revised.
• Gold price has shown a recovery move after correcting to near the prior accumulation area placed in a range of $1,971-2,009.

Gold price (XAU/USD) is looking to extend its recovery above the immediate resistance of $2,020.00 in the early Tokyo session. The precious metal was heavily dumped on Friday after the release of the solid US Employment data. However, a scrutiny of the US labor market report showed that March’s labor additions were downwardly revised, which changed the entire context.

The addition of fresh talent in March’s Nonfarm Payrolls (NFP) report was revised down from 263K against the previously reported for March to just 165K. A 37% downward revision in March’s Employment report meant that the net jump in fresh payrolls in April was a mere 2%, making it insufficient for the Federal Reserve (Fed) to reconsider its neutral interest rate guidance.

However, the catalyst that will keep haunting Fed policymakers is the upbeat Average Earnings report. Earnings accelerated in April at a pace of 0.5% while the street was anticipating a pace of 0.3%.

Optimism influenced by the unimpressive US NFP report resulted in a rally in S&P500. Investors believed that the worse is over for now as the Fed has reached its terminal rate. Meanwhile, US President Joe Biden is to meet with Speaker Kevin McCarthy and other congressional leaders on Tuesday to talk about the looming debt ceiling crisis, as reported by ABC News. US Biden has already warned Republicans that a delay in settling the US debt crisis could cost significant labor loss and Gross Domestic Product (GDP).

Gold technical analysis

Gold price has shown a recovery move after correcting to near the prior accumulation area placed in a range of $1,971-2,009 on a two-hour scale. The precious metal found support near the 200-period Exponential Moving Average (EMA) at $2,003.72. Also, the Relative Strength Index (RSI) (14) has defended its cushion around 40.00 in the meantime.

Gold two-hour chart

Scope Ratings on Friday placed the United States of America's AA long-term issuer and senior unsecured debt ratings in local and foreign currency under review for a possible downgrade due to longer run risks associated with the misuse of the debt ceiling instrument, per Reuters.

Scope, the leading European credit rating agency per Reuters, said that recurrent debt-ceiling crises have resulted in phases of debt repayment distress for the US government, adding that the government is dependent on last-minute congressional action to ensure repayment of its debt in full and on time.

Key statements

Also read: Forex Today: Commodity currencies comeback, focus shifts to US inflation

“The European Central Bank's (ECB) interest rate hikes are starting to have an effect, but more will be needed to contain inflation,” said Dutch Central Bank President Klaas Knot per Reuters.

The news portrays ECB’s Knot as a policy hawks as it cites the policymaker’s vote for the ECB decision on Thursday to slow the speed of rate hikes to 25 basis points, or 0.25%.

“But, speaking on Dutch television, he said he still could support the lifting of rates to 5% from the current 3.25%, or even higher - if inflation proves more persistent than he expects,” adds Reuters.

ECB’s Knot also said that their policy works with a certain delay, so the biggest effects of what we have done so far are still in the pipeline

Also read: EUR/USD grinds higher past 1.1000 with eyes on US inflation, banking report

“US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness,” per Reuters.

The news also mentions that Yellen sounded the alarm over possible financial market consequences if the debt ceiling is not raised by early June, when she said the federal government could run short of cash to pay its bills.

It should be noted that US Treasury Secretary Janet Yellen spoke at the ABC program "This Week."

Additional comments

Also on the subject

Apart from US Treasury Secretary Yellen’s comments, Reuters also mentioned that US President Joe Biden is preparing to meet on Tuesday at the White House with Republican House Speaker Kevin McCarthy, Republican Senate Minority Leader Mitch McConnell and top congressional Democrats to discuss the issue.

“A group of 43 Senate Republicans on Saturday said they oppose voting on a bill that only raises the U.S. debt ceiling without tackling other priorities, showing they could block such a plan by Democrats,” adds the news.

Also read: EUR/USD grinds higher past 1.1000 with eyes on US inflation, banking report

• GBP/USD seesaws around one-year high after posting third weekly gain.
• Upbeat UK data teases strong BoE rate hike and allow Cable buyers to remain hopeful.
• Fed’s dovish hike, fears emanating from US banking and debt ceiling issues weigh on US Dollar despite NFP-led bounce.
• UK markets are off on Monday, BoE, preliminary UK Q1 GDP and US CPI eyed for the week.

GBP/USD makes rounds to the highest level in a year, steady near 1.2635 during early hours of Monday morning in Asia.

Even so, the Cable pair buyers occupy the driver’s seat as the key week comprising the Bank of England (BoE) Monetary Policy Meeting, UK Gross Domestic Product (GDP) for the first quarter (Q1) of 2023 and the US Consumer Price Index (CPI) for April loom. That said, the pair buyers cheered broadly upbeat UK activity data and the US Federal Reserve’s (Fed) dovish rate hike, as well as broad US Dollar weakness, in that last week.

US Dollar Index (DXY) dropped for the third consecutive week despite paring some of the losses on Friday’s upbeat US jobs report for April. It’s worth noting, however, that the latest hawkish comments from a Fed officials and negative developments around the US banking and debt ceiling issues seem to challenge the GBP/USD bulls amid holiday in the UK.

On Friday, the US employment report for April surprised markets by unveiling a jump in the headline Nonfarm Payrolls (NFP) by 253K expected and revised down prior readings of 165K. Further, the Unemployment Rate also eased to 3.4% versus 3.5% market forecasts and previous mark whereas Average Hourly Earnings improved to 4.4% YoY from 4.3% prior (revised) and analysts’ estimations of 4.2%.

Following the upbeat US employment report, St. Louis Federal Reserve President James Bullard, who supported the 25 basis point rate hike that the Fed took last week, called it "a good next step." The policymaker cited significant amount of inflation in the economy and "very tight" labor market to back his hawkish bias.

On a different page, US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness, per Reuters. Elsewhere, US Senior Loan Officer Opinion Survey on Bank Lending Practices is up for release during the week and will be eyed for banking crisis.

At home, the final readings of the UK’s S&P Global/CIPS Services PMI rose past 54.9 initial forecasts to 55.9 for April while the Composite PMI also increased to 54.9 versus 53.9 flash estimations for the said month.

Against this backdrop, Wall Street ended the week on the positive side while the US Treasury bond yields bounced back.

Moving on, BoE’s ability to convince hawkish bias amid upbeat inflation and activity data will be the key for the GBP/USD pair traders to watch for clear directions.

Technical analysis

A clear upside break of a one-month-old resistance line, now immediate support around 1.2590, directs GBP/USD towards crossing the previous yearly high of near 1.2665.

• EUR/USD remains sidelined after a volatile week, defends multi-day-old trading range around yearly high.
• ECB’s comparatively more hawkish bias than Fed joins US banking fears to fuel Euro prices.
• US CPI for April, a bank survey report eyed this week for clear directions.

EUR/USD begins the trading week without surprises around 1.1025, following a volatile week that ended near the start.

The Euro pair cheered the European Central Bank’s (ECB) comparatively more hawkish rate hike than the Federal Reserve (Fed), as well as the fears emanating from the US banking crisis and the debt default woes. However, the region’s economics weren’t so impressive and the US employment report for April marked strong prints, which in turn prod the EUR/USD bulls.

On Friday, the US employment report for April surprised markets by unveiling a jump in the headline Nonfarm Payrolls (NFP) by 253K expected and revised down prior readings of 165K. Further, the Unemployment Rate also eased to 3.4% versus 3.5% market forecasts and previous mark whereas Average Hourly Earnings improved to 4.4% YoY from 4.3% prior (revised) and analysts’ estimations of 4.2%.

Following the upbeat US employment report, St. Louis Federal Reserve President James Bullard, who supported the 25 basis point rate hike that the Fed took last week, called it "a good next step." The policymaker cited significant amount of inflation in the economy and "very tight" labor market to back his hawkish bias.

On the other hand, “European Central Bank (ECB) interest rate hikes are starting to have an effect, but more will be needed to contain inflation,” said Dutch Central Bank President Klaas Knot on Sunday per Reuters. On Friday, ECB Governing Council member and Bank of France head Francois Villeroy de Galhau said that there will likely be several more hikes.

During the last week, the ECB matched market forecasts by announcing a 25 basis points (bps) increase in its benchmark rates and also unveiled faster dialing back of its Asset Purchase Programme (APP) to around EUR25 billion per month from July, from the current pace of EUR15 billion per month. The regional central bank chose to remain hawkish and shut the door for a rate hike pause while saying, “Inflation outlook continues to be too high for too long." Following the Interest Rate Decision, ECB President Christine Lagarde said, "We are not Fed-dependent in rate decisions, we can tighten if the Fed pauses."

On a different page, Reuters reported that US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness.

Amid these plays, Wall Street ended the week on the positive side while the US Treasury bond yields bounced back. Even so, the US Dollar Index remained pressured.

Moving on, US Consumer Price Index (CPI) for April will be crucial to watch for the EUR/USD traders for clear directions, especially after Friday’s upbeat US NFP. Also, US Senior Loan Officer Opinion Survey on Bank Lending Practices and the debt negotiations will be eyed too. It should be noted that there are no major data/events from Europe this week.

Technical analysis

A three-week-old bullish trend channel, currently between 1.1115 and 1.0955, appears crucial for EUR/USD traders to watch. That said, bulls appear running out of steam of late.

• AUD/USD is looking to climb above 0.6750 as Fed to remain neutral on interest rates.
• The USD Index failed to get sustained positive momentum despite a solid US labor market.
• Robust earnings could propel US inflation as households would be equipped with higher funds for disposal.

The AUD/USD pair is making efforts to shift its auction above the immediate resistance of 0.6750 in the early Asia session. The Aussie asset is expected to attract significant bids as the Federal Reserve (Fed) is expected to pause paddling the interest rates cycle despite tight United States labor market conditions.

S&P500 was heavily bought on Friday as investors focused on optimism derived from neutral guidance from the Fed and ignored US banking jitters, portraying a cheerful market mood. The US Dollar Index (DXY) looks vulnerable above the immediate support of 101.20. The USD Index failed to get sustained positive momentum despite the serious addition of fresh payrolls in the US labor market.

Meanwhile, the US Treasury yields showed some recovery as investors thought solid US Employment data could force Fed policymakers to reconsider their pausing approach. And, solid US Nonfarm Payrolls (NFP) could provide a base for the data-dependent approach to be followed by the Fed.

As per the US Employment report, the US economy added 253K fresh jobs in April, higher than the consensus of 179K and the former release of 165K. The Unemployment Rate softened to 3.4% vs. the expectations and the prior release of 3.5%. Apart from that, monthly Average Hourly Earnings accelerated at a pace of 0.5% while the street was anticipating a pace of 0.3%. Robust earnings could propel US inflationary pressures as households would be equipped with higher funds for disposal.

On the Australian Dollar front, investors will focus on the quarterly Retail Sales data. First-quarter Retail Sales are expected to contract by 0.4% vs. the former contraction of 0.2%. This might allow the Reserve Bank of Australia (RBA) to keep interest rates steady as declining retail demand is not supportive of policy tightening.