The U.S. dollar is modestly stronger this morning but holding tight ranges as traders await a slew of news this afternoon and evening.
Overview
If dollar strength holds, it will mark the first back-to-back day of gains this month. While there are second-tier data on this morning’s docket, all attention is on the Federal Reserve’s interest rate decision at 2 p.m. today.
Chairman Powell will hold a press conference 30 minutes later. While it is widely expected the central bank will not change policy today, we will be looking for clues as to when the Fed will start to “taper” its asset purchase program. The Fed has previously maintained that they do not see interest rates rising until at least 2023. We do not even think the Fed believes this. We expect tapering to begin as soon as later this year and the first interest rate hike to come in 2022. The ultimate timing will have a great impact on markets and the greenback.
This evening, President Joe Biden will give his first State of the Union address to Congress. He is expected to introduce the “American Families Plan” which is said to contain large spending and tax cuts for middle and lower-income families. The plan would be partially funded by tax hikes on the wealthiest Americans. Equity and bond trades will undoubtedly react to the details of the plan which should also affect the direction of the dollar.
What to Watch Today…
- Fed at 2 p.m.
- Powell at 2:30 p.m.
- State of the Union at 9 p.m.
CAD ⇑
The Canadian dollar bucked the trend of a stronger greenback and made modest gains versus its American rival. The loonie is likely taking advantage of an uptick in the price of oil. Attention will quickly shift to Canadian retail sales that are expected out shortly. Economists expect sales month over month in February to have risen 4.0%, up from -1.1% in the month prior.
AUD ⇓
On a quiet night, the Australian dollar stood out, falling half a percent against its American rival on weaker-than-expected inflation data. Australia’s core inflation decelerated to the slowest pace on record. The low inflation in Australia should allow the Reserve Bank of Australia to keep rates low for longer. Governor Philip Lane said he does not expect to raise rates until 2024.
As discussed above, we are moving our interest rate expectation for the U.S. upwards to 2022. The expected widening differential between the Fed’s policy and the RBA’s policy will keep the Aussie dollar in check.
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