Article Highlights

  • U.S. ISM manufacturing PMI down from 57.7 to 57.2 in March
  • U.S. ISM manufacturing prices index up from 68.0 to 70.5
  • U.S. construction spending up 0.8% vs. 1.0% forecast
  • U.S. total vehicle sales down from 17.6M to 16.6M vs. 17.4M forecast
  • BOC Business Outlook Survey: Signs of further strengthening in domestic demand
  • FOMC Harker: Two rate hikes appropriate in 2017
  • Harker: Inflation moving slowly but surely upward, unemployment near natural rate
  • U.S. 10-year bond yield down 6.2 basis points, 2-year yield down 2.8 basis points
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It wasn’t such a manic Monday for New York session traders as the major pairs were mostly confined to their ranges, waiting for the bigger events lined up later in the week.

Major Events:

U.S. ISM manufacturing PMI dip – As expected, the ISM manufacturing PMI fell from 57.7 to 57.2 in March to reflect a slower pace of industry growth. Underlying data indicated that the prices component advanced from 68.0 to 70.5 versus the forecast at 68.5 while the employment component improved from 54.2 to 58.9.

However, production slipped from 62.9 to 57.6 while inventories were down from 51.5 to 49.0, indicating contraction. This indicates that businesses merely used up their stockpiles instead of stepping up manufacturing activity for the month. New export orders also advanced from 55.0 to 59.0 to reflect stronger demand while imports fell from 54.0 to 53.5.

Respondents included in the ISM survey noted that business conditions continue to improve and that their outlook is positive. They also noted that the pickup in price levels is putting upside pressure on their sales prices and that orders continue to increase.

In other U.S. reports, construction spending rose at a slower pace of 0.8% versus the projected 1.0% gain while total vehicle sales slumped from 17.6 million to 16.6 million, lower than the projected dip to 17.4 million.

FOMC member Harker’s testimony – Joining his fellow hawkish members is Philadelphia Fed President Patrick Harker, who also supported the idea of seeing two more interest rate hikes from the U.S. central bank this year.

According to Harker, inflation is moving slowly but surely upward and that the economy is approaching its natural unemployment rate. He reiterated that tightening should be gradual and incremental, adding that policymakers don’t want to rush but don’t want to get left behind either.

BOC Business Outlook Survey  – The Bank of Canada printed the results of its Spring Business Outlook Survey, which asked 100 respondents to rate the relative level of business conditions and serves as a leading indicator of economic performance.

The report revealed that businesses are seeing a modest recovery in sentiment and signs of further strengthening in domestic demand after a two-year lull. In particular, firms in the energy industry believe that a recovery is underway while other sectors are foreseeing a pickup in export activity even with the uncertainty surrounding trade ties with Uncle Sam.

Even though price levels have ticked slightly higher, businesses are anticipating little momentum in input and output prices as inflation expectations are still at the lower half of the central bank’s inflation-control range. Hiring expectations are also positive and there are signs that the labor market slack is no longer widening.

Major Market Movers:

JPY –  The yen took advantage of the dollar’s slide as the U.S. currency was bogged down by a drop in 10-year bond yields to 2.324% and in 2-year bond yields to 1.226%. Risk-off flows stemming from the terrorist attack in St. Petersburg also supported the Japanese currency.

USD/JPY slipped from 111.37 to a low of 110.85, EUR/JPY dropped from 118.73 to a low of 118.12, GBP/JPY is down from a high of 139.56 to a low of 138.32, and AUD/JPY dropped below the 84.00 mark.

Watch Out For:

  • 2:30 am GMT: Australian trade balance (1.75B AUD expected, 1.30B AUD previous)
  • 5:30 am GMT: RBA interest rate decision (Check out Forex Gump’s Trading Guide!)
  • 6:00 am GMT: BOJ core CPI y/y (0.2% expected, 0.2% previous)

See also:

London Session Recap
Asian Session Recap

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