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Even though U.S. retail sales data disappointed, the Greenback raked in more pips as U.S. bond yields advanced while riskier assets retreated.

  • U.S. headline retail sales rose 0.3% vs. 0.4% forecast in April
  • U.S. core retail sales increased 0.3% vs. 0.5% consensus
  • U.S. March headline retail sales upgraded from 0.6% to 0.8%
  • U.S. March core retail sales upgraded from 0.2% to 0.4%
  • Empire State manufacturing index up from 15.8 to 20.1 vs. 15.1 consensus
  • U.S. business inventories flat vs. estimated 0.2% gain
  • U.S. NAHB housing market index up from 68 to 70 as expected
  • New Zealand GDT auction yielded 1.9% rebound in prices, -1.1% previous

Major Events/Reports:

Mixed U.S. retail sales data

Consumer spending was subdued in April as the retail sales report for the month printed weaker than expected results. The headline reading rose by 0.3% versus the 0.4% consensus while the core figure also posted a 0.3% uptick versus the 0.5% estimate.

Underlying data revealed that there were strong gains in gasoline sales and non-store retailers. The report also revealed higher prices lifting overall spending figures, spurring tightening expectations on rising inflationary pressures.

To top it off, the previous report saw notable upgrades, with the headline figure revised higher from 0.6% to 0.8% and the core reading from 0.2% to 0.4%.

Cautious Fed remarks

Commentary from Fed officials tried to downplay tightening expectations, but these did little to stop the dollar from rallying.

FOMC member Williams pointed out that he’s not yet seeing signs of price levels taking off, adding that he wouldn’t mind if inflation overshoots the target by “a few tenths.”

However, he did say that he expects wages to pick up later this year as economic growth continues to improve. He also noted that the Fed might need to change its forward guidance on accommodative policy, citing that he supports the committee’s projections for further hikes this year and next year.

As for Fed official Kaplan, he mentioned that he’s not set on seeing two to three rate hikes this year. He explained that, even though the local consumer sector is in good shape, most global factors remain deflationary.

Bond yields up, equities down

The pickup in Fed rate hike expectations spurred by positive bits in the U.S. retail sales release lifted U.S. bond yields once more.

  • U.S. 5-year yield surged to 2.913%
  • U.S. 10-year yield is up to 3.067%
  • U.S. 30-year yield jumped to 3.195%

On the flip side, the prospect of higher borrowing costs dampened business sentiment and caused equity indices to close in the red.

  • Dow 30 index is down 193.00 points to 24,706.41 (-0.78%)
  • S&P 500 index is down 18.68 points to 2,711.45 (-0.68%)
  • Nasdaq is down 59.69 points to 7,351.63 (-0.81%)

Gold slid on dollar strength but crude oil managed to hold its ground.

  • Gold slid $21 to $1,292.00 per troy ounce
  • WTI crude rose $0.21 to $71.16 per barrel

In New Zealand, the GDT auction yielded a 1.9% rebound in dairy prices after sliding 1.1% in the earlier instance.

Major Market Mover(s):

USD

The Greenback held on to the top spot for the rest of the day, boosted further by rising U.S. bond yields on revived rate hike prospects.

USD/JPY surged from 109.90 to a high of 110.46, USD/CHF rose from parity to a high of 1.0038 but retreated quickly, EUR/USD is down to a low of 1.1816, and AUD/USD fell to .7474.

NZD

The Kiwi slumped to the bottom of the forex pile and failed to draw support from the rebound in GDT prices.

NZD/USD slumped to the .6870 support level, NZD/JPY tumbled to a low of 75.70, GBP/NZD popped up to 1.6860, and AUD/NZD made another test of the 1.0900 mark.

Watch Out For:

  • 11:50 pm GMT: Japanese preliminary GDP q/q (0.0% expected, 0.4% previous)
  • 11:50 pm GMT: Japanese preliminary price index y/y (0.3% expected, 0.1% previous)
  • 12:30 am GMT: Australia Westpac consumer sentiment index (-0.6% previous)
  • 1:30 am GMT: Australia wage price index q/q (another 0.6% increase expected)