Dollar Mixed Ahead of US Retail Sales and Inflation

US Data could impact Fed June rate hike plans

The US dollar is mixed against major pairs ahead of the release of the US retail sales and inflation reports. The US Producer Price Index (PPI) rebounded in April with a 0.5 percent rise. The core PPI rose 0.4 percent after stripping away the volatile energy and food components. Wholesale inflation is a leading indicator and its rise should keep the Fed’s plans of a tighter monetary policy with the market pricing in a 88 percent probability of a rate hike in June.

The US Bureau of Labor Statistics will release the consumer price index (CPI) on Friday, May 12 at 8:30 am EDT. The inflation gauge is expected to expand by 0.2 percent after last month’s contraction. The metric preferred by U.S. Federal Reserve officials is the core CPI with a 0.2 percent gain forecast excludes food and energy products. US retail sales will be published by the Census Bureau and big gains are anticipated as warmer weather is expected to have boosted consumption. Last month core retail sales was flat, while the headline figure contracted by 0.2 percent. In April there is a 0.5 percent gain for core and 0.6 percent for retail sales forecasted.

The USD advanced against the NZD, CAD and the GBP. The New Zealand dollar and the British pound were victims of dovish assessments of their respective Central banks while the Canadian dollar suffered a depreciation triggered by a downgrade of six financial institutions. Risk aversion boosted the Japanese yen and the Swiss francs against the greenback with the euro staying relatively flat against the USD.

The EUR/USD gained 0.041 percent in the last 24 hours. The single currency is trading at 1.0866 ahead of US inflation and retail sales data. The buck is taking a breather after positive comments from the Fed and expectations of higher inflation have kept a June rate hike firmly on the table. The growth outlook in the United States has improved from the first quarter and if economic data keeps validating the Fed’s forecasts the meeting in June will end up with an interest rate hike announcement.

The Fed had to drop strong hints in March that it was going to raise rates after the market did not account for a hike so early in the year after years of a more patient central bank. The Trump pro-growth policies have not been introduced which could alter the overall assessment of the economy and could be a big reason why the market is not buying the Fed’s rhetoric about more rate moves at a faster pace. The Fed has been here before, but this time it seems policymakers are ready for the rates to do the talking.

Oil gained 1.172 percent on Thursday. The price of West Texas is trading at $47.65 following a move that started yesterday with the higher than anticipated drawdown in US inventories. The deal to curb production by the Organization of the Petroleum Exporting Countries (OPEC) and major producers such as Russia stabilized prices since the details were still being hashed out last year. Originally a six month agreement, the group will meet on May 25 to discuss an extension. US producers have benefited from higher prices and have ramped up production minimizing the overall effect of the OPEC deal on prices.

Gold gained 0.545 percent in the last 24 hours. The yellow metal is trading at $1,224.52 after a second day in positive territory. The USD rally that started at the beginning of the week is losing some steam. Fed comments has stoked the USD rally and put downward pressure on the yellow metal, but US political risk after the firing of FBI Director James Comey is keeping the safe haven asset bid.

Market events to watch this week:

Monday, May 8
9:30pm AUD Retail Sales m/m
Tuesday, May 9
5:30am AUD Annual Budget Release
Wednesday, May 10
10:30am USD Crude Oil Inventories
5:00pm NZD Official Cash Rate
5:00pm NZD RBNZ Rate Statement
6:00pm NZD RBNZ Press Conference
9:10pm NZD RBNZ Gov Wheeler Speaks
Thursday, May 11
4:30am GBP Manufacturing Production m/m
7:00am GBP BOE Inflation Report
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
8:30am USD PPI m/m
8:30am USD Unemployment Claims
Friday, May 12
All day G7 Meetings
8:30am USD CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m
10:00am USD Prelim UoM Consumer Sentiment
Saturday, May 13
All day G7 Meetings

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza