Can ISM data wake the US dollar index from its three-month slumber?
Despite an eventful quarter of macro events, the US dollar index ended Q1 2023 relatively unchanged, down just 0.87%, after its 7.75% fall in Q4 2022.
The DXY’s lack of movement during the March quarter despite a banking crisis and a dramatic shift in Fed rate expectations from rate hikes to rate cuts is a sign of the uncertainty of the current macro environment.
This week sees the release of three measures of the labour market including Non-Farm Payrolls, on Friday night. However, before that is the release of ISM (manufacturing and non-manufacturing) data. Upside/hawkish surprises from any of the incoming labour market and ISM data could see the rates markets reprice the risk of more aggressive Fed rate hikes.
ISM Manufacturing
Release date: Tuesday, April 4th at 1.00am AEST
The headline ISM Manufacturing survey is expected to fall to 47.5 in March from 47.7 in February. Regional manufacturing surveys point to a loss of momentum after the gentle rebound in February. Respondent’s comments will be closely examined for evidence that credit conditions have tightened following recent banking stress.
ISM Manufacturing chart
ISM Non-Manufacturing (Services)
Release date: Thursday, April 6th at 1.00am AEST
The headline ISM Services Index is expected to fall slightly to 54.3 in March from 55.1 in February, still consistent with moderate expansion. There will be interest in the prices sub-index, which has remained at elevated levels, consistent with sticky services inflation.
ISM Non-Manufacturing chart
DXY technical analysis
After peaking in September at 114.78, the DXY index fell over 12% as the market anticipated the Fed would slow its rate hiking cycle and as it moved closer to a potential pause.
In early February, the DXY index commenced a recovery which coincided with the start of the hotter US economic data. However, the onset of the banking crisis, which saw the rates market begin to price in rate cuts, undermined the rally taking the DXY back to support at 101.00.
April has historically been one of the worst months for the US dollar, so a deeper decline back to the 100.82 low of early February cannot be ruled out. On the topside, resistance looks rock solid 106/106.50 area, coming from the 200-day moving average and trend channel resistance from the 114.78 high).
DXY index daily chart
- TradingView: the figures stated are as of April 3rd, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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