Overall, the U.S. Dollar traded mixed against the major currencies but held steady through out the day session. The slow volatility stems from the lack of fresh U.S. economic news and the lack of news regarding Greece and its budget woes. Forex traders were also keeping things tight ahead of the upcoming Bank of Japan meeting and the Reserve Bank of New Zealand and Federal Reserve meetings on April 28th.
The GBP USD finished higher on Monday in mostly range bound trading in New York. Recent U.K. economic data has supported the Pound, but gains have been limited by political uncertainty. This outlook changed overnight following the release of a new poll showing that the main opposition Conservative Party is gaining ground. This outcome will reduce the chances of a hung parliament and increases the chances that a solution may be hammered out regarding the U.K. budget deficit.
The Bank of Japan is expected to keep interest rates unchanged at historically low levels. The market moving news will be how the BoJ assesses the economy and inflation. Demand for higher risk assets, namely the U.S. stock market, has been pressuring the Yen lately. Deflation has also contributed to the weakness. Traders will be looking for a rosier outlook for the economy and hints of inflation from the BoJ policy makers.
One sticking point between the government and the BoJ has been the topic of quantitative easing or stimulus. The government continues to pressure the central bank for expanded stimulus. While the BoJ may pass on expansion by limiting its purchase of Japanese Government Bonds, it may consider lengthening the maturities to appease the government officials. At this time it doesn’t look like the Bank of Japan will do anything to encourage traders to buy the Yen so the USD JPY uptrend is likely to continue as long as U.S. equity markets keep rising.
The NZD USD was the big gainer today. Although the Reserve Bank of New Zealand is expected to keep interest rates unchanged at 2.50%, traders feel that the RBNZ may be moving more quickly toward increasing interest rates 25 basis points sooner than previously estimated. Recent better than expected economic reports are most likely moving the central bank closer to hiking rates before the previously mentioned second half of the year.
The AUD USD closed lower on Monday after an early attempt to rally failed. Stronger demand for higher risk assets helped the Aussie overnight, but U.S. stock market weakness pressured this Forex pair after the New York mid-session. Traders are expressing uncertainty about whether recent economic information supports another rate hike by the Reserve Bank of Australia in May. A breakout over .9337 will be a strong indication that rates will be hiked once again. A trade through an uptrending Gann angle at .9250 could trigger a technical sell-off.
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