EUR and JPY to lag against the USD, commodity currencies to outperform – TDS

The MoM rate of inflation according to the CPI came in at 1.2%. Core Consumer Price Inflation came in at 0.3% MoM, below expectations for 0.5%. This print should not materially change price action in the currency space, according to economists at TD Securities. They think the EUR and especially the JPY remain inferior to the USD.

CAD and AUD should find modest support as the need for tightening remains

“Consumer prices came on top of expectations in March, rising an eye-popping 1.2% MoM. The core index, however, rose a less strong 0.3%, surprising expectations to the downside. The 12-month changes in the overall and core CPI rose to new multi-decade highs, but we expect March to represent the peak of the cycle.”

“The need for the Fed to deliver a series of 50bp hikes remains in place. Inflation prints will be consequential for terminal rate pricing, which will matter more for the USD from a cyclical point of view.”

“We think USD/JPY will remain elevated around 125 (unless terminal rate pricing moderates substantially).”

“EUR/USD is unlikely to budge until we get past the ECB meeting this week (in what could be a far more hawkish event) and perhaps until the outcome of the French elections is known.” 

“A moderation in US inflation should be more supportive for commodity currencies, as the need for tightening persists there but they continue to benefit from a tailwind arising from the terms of trade. We see USD/CAD more fairly priced towards 1.25, while AUD/USD dips are a strategic buy on dips.”