North American FX Open - Market braced for negative US Q1 GDP number

After taking two data body blows in the last two days, the Dollar is showing its resilience once again, as we head into another important data point, our first look at Q1 GDP. There has been a lot of talk about decent sized month end related demand for the US unit, with Deutsche Bank the latest, saying they expect Jpy and Cad selling against the Dollar.

However, as we near the end of a tumultuous month in the markets, it looks likely that the Dollar will register its worst month since November 2022.

The crucial Australian Q1 CPI report came in slightly faster than expected, with the headline rate remaining at 2.4% y/y, compared to the consensus forecast of 2.3% y/y. The trimmed mean measure, Australia's core print, slowed to 2.9% y/y from an upwardly revised 3.3%y/y in Q4, which was again 0.1% y/y higher than forecast.

The recent decline in risk aversion and last night's data has the market settling on expecting another 25bps rate cut from the RBA on May 20th. The data does mean though that the RBA's preferred inflation measure, the trimmed mean, has now dropped within the central bank's target range, for the first time since Q4 2021. Overall, inflation is tracking largely as the RBA forecast, which means at the moment that they can adopt a steady course of rate reductions.

EZ GDP in Q1 came in at 0.4% q/q, double the 0.2% forecast.

President Trump renewed his criticism of Fed Chair Powell, as he championed his economic policies and tariff regime during a Tuesday event to mark his 100th day in office.

After yesterday's March trade data analysts have significantly downgraded their expectations for today's Q1 GDP print. JP Morgan now expect a fall of 1.8%, compared to their previous estimate of flat. Pantheon Macro look for a fall of around 1%, compared to their previous outlook for a 0.5% expansion. So we suspect that the market is leaning towards a worse figure than the consensus forecast for a contraction of 0.2%.

Other data due includes the ADP Private Payroll report and the Core PCE Price Index. While growth is also the forecast north of the border with the February number and the flash estimate for March.

We should also hear from the BoE's Lombardelli, the ECB's Villeroy and Makhlouf. There is also the release of the Bank of Canada's latest summary of deliberations, which covers their last on hold verdict.

---- Subscribe to read more ----

To receive this analysis plus much more, subscribe to IGM. Request your free trial of the service today.