Dollar weakens as Janet Yellen outlines Fed’s gradual approach to rate hikes

Weekly Report - 03/04/2016

Dollar weakens as Janet Yellen outlines Fed’s gradual approach to rate hikes

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Despite better than expected ISM manufacturing and broadly positive print to March jobs report, the US dollar closed the week on a bearish note following comments from Fed chairwoman, Janet Yellen.

Weekly Review

The US Dollar saw a bearish week with the help of Fed chairwoman Janet Yellen's dovish speech at the Economic Club of New York on Tuesday. With inflation being the biggest concern, Ms. Yellen said that further evidence was needed to gain confidence that inflation was rising. Suggesting that the Fed will take a cautious approach to the rate hikes, the Greenback fell strongly during the week while sending EURUSD to a 5-month high and AUDUSD to a 9-month high. Gold prices failed to capitalize on the gains despite posting rally of over 1.0% on Tuesday. By Friday, the much awaited nonfarm payrolls report saw the US unemployment rate rise back to 5.0% but with a 63.0% labor force participation rate in March, higher than February's 62.90%. Average hourly earnings also picked up steam, rising 0.30% and beating forecasts of 0.20%. ISM manufacturing was also robust, rising to 51.8 for the first time since October 2015 and showing that the US manufacturing sector was starting to see an expansion.

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The Week Ahead

The week ahead will see the Reserve Bank of Australia taking center stage. While no changes to interest rates are expected, currently at 2.0%, the markets are cautious as the RBA could jawbone the Australian dollar which has posted steady gains in the first quarter. However, the monetary policy statement is likely to remain neutral as far as the economic outlook is concerned. Building permits and retail sales from Australia are also due over the week with positive expectations. The week ahead will also see speeches from Mario Draghi and Janet Yellen which could potentially be another market mover in light of the euro's appreciation against the dollar and the development from US labor markets in March which saw an increase in the average earnings as well as the participation rate.

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