FX.co ★ 07.05.2024: USD in trouble despite putting pressure on JPY

“The data turns out to be uneven, we look to the future. And we must be vigilant about inflation risks,” the Reserve Bank of Australia’s Governor said today. As a matter of fact, Michelle Bullock’s comments could equally well be used by the governors of other major central banks in their forecasts for future interest rates.

The Australian regulator maintained its key interest rate today unchanged at 4.35% for the fourth time straight. It was a completely expected decision.

The traditionally evasive answers from Japan’s Ministry of Finance did not come as a surprise. Its officials refrained from commenting on whether the agency was involved in selling the US dollar. Deputy Finance Minister Masato Kanda reiterated on Tuesday that the government would "continue to maintain the same firm approach" to the yen's erratic movements.

Despite regular warnings against high volatility in the dollar/yen pair, the yen remains attractive to carry traders. In such transactions, investors borrow in low-yielding currencies to invest in high-yielding assets elsewhere. In this regard, the greenback is all right. After all, it provides a high rate on short-term deposits among G10 countries.

In the future, the Bank of Japan will be very cautious in monetary tightening. Besides, monetary easing by the Federal Reserve will still take some time. Therefore, even after last week's advance, the yen remains the most undervalued currency in the G10 group. The dollar/yen pair again is looking very volatile today, trading downwards in a wide range of 153.8 to 154.7.

But the US dollar itself is still greatly overvalued. Recent comments from the Fed’s policymakers if not heated up the greenback, but at least brought it to a stable state. The US dollar index which measures the greenback’s strength in relation to its six rival currencies is trading today within an intraday corridor between 105.0 and 105.3.

For this reason, the single European currency perked up today. The euro/dollar pair is trading higher in the intraday corridor between 1.0758 and 1.0785. Currently, Europe is preparing for events dedicated to the end of World War II.

For example, in France, the day-off begin tomorrow. So, the currency market is trading vigorously today in the early New York session. The European currency did not miss its chance. On the whole, the euro is still having a pullback from the resistance level of 1.0800.

To consolidate bullish positions, the instrument has to settle above this critical line. Otherwise, the euro may resume its fall, especially if the price stays below 1.0750.

For oil prices, the key sign of growth is still political news from the Middle East. As concerns about potential disruptions in crude oil supplies from the region grow, so do oil prices.

Today, the benchmark Brent is trading below its usual range of 83-84 dollars a barrel, where it has been stuck for the past few days. Considering the complete absence of any news that could affect oil prices, the US dollar has the greatest influence now.

The data on US oil inventories is published today, which should decrease by 1.4 million barrels. Apparently, this will lead to some increase in oil quotes. So, prices could rise above 84 dollars per barrel.

As for forecasts for OPEC plans, most analysts believe that the cartel and its allies will maintain their output cuts, perhaps even right into the second half of the year. This should support high oil prices in the future.