Good morning,
(Reuters) - The dollar hit a six-week high against the yen on Thursday, after the U.S. Federal Reserve downplayed weak first-quarter economic growth and was seen as leaving the door open to raising interest rates in June.
The Fed kept interest rates unchanged on Wednesday while emphasizing the strength of the labor market - a sign it was still on track for two more rate rises this year.
The central bank said consumer spending continued to be solid, business investment had firmed, and inflation has been "running close" to its target.
The dollar rose to 112.89 yen earlier on Thursday, its strongest level in more than six weeks. It later pared those gains and last traded at 112.76 yen, little changed from late U.S. trade on Wednesday.
The U.S. currency benefited as the Fed kept the door "wide open" to a June rate hike, said Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore.
"The risk was that they could have perhaps sounded a little bit more dovish on the back of the recent data and that certainly wasn't the case," he added.
Private reports released on Wednesday supported the notion that the U.S. economic expansion remains on track despite a weak first quarter. U.S. companies hired workers at a slower but still-solid pace in April while the services sector grew more than expected, the reports showed.
The euro edged up 0.1 percent to $1.0895, regaining a bit of ground after falling 0.4 percent on Wednesday.
The euro has lost some steam after scaling a 5-1/2 month high of $1.0951 last week, when it rallied on relief over centrist Emmanuel Macron's victory against anti-euro nationalist Marine Le Pen in the first round of France's presidential elections. The runoff vote is on May 7.
An opinion poll showed that Macron was found more convincing than Le Pen in Wednesday's televised debate, reinforcing his status as favorite to win the second round of the election on Sunday.
"I think markets have largely already priced in a Macron win," said Kotecha at Barclays, adding that the latest poll result was unlikely to have much of an impact on the euro.
Investors are awaiting Friday's monthly U.S. non-farm payrolls report, for further hints on the Fed's likely rate hike trajectory through the end of the year.
"There's been some dollar-buying globally," said Satoshi Okagawa senior global markets analyst at Sumitomo Mitsui Banking Corporation, referring to the market reaction after the Fed meeting.
However, there is still uncertainty as to whether the economy is really on track for the Fed to raise interest rates twice more this year and to begin reducing its balance sheet, either in late 2017 or next year, Okagawa added.
The Australian dollar touched its lowest level in nearly four months at $0.7407. It was last trading at $0.7423, little changed on the day.
The Australian dollar is down about 0.9 percent so far this week, largely due to a shakeout in Aussie long positions.
As we've decided avoid EUR for awhile, although specified short term 1.0980 target, and yesterday we've talked on GBP, today we need to take a look at our another setup that we have - on NZD.
On GBP we haven't got yesterday upside continuation as Fed statement was mostly USD supportive, but, still, nothing dramatical has happened as well. Cable could turn to some sideways action for some time, as Parlament dismiss and early elections will make investors be careful.
Now, on NZD... Here we could say that upside retracement is over and market turns back to bearish trend. Kiwi again now stands in extension mode and our next destination point is AB=CD and butterfly target @ 0.6750. Retracement is over, because yesterday price has formed reversal session that as a rule indicates bearish reversal and continuation of the trend:
On 4-hour chart you can see that retracement is over around our "last edge" - 5/8 FIb resistance:
It means that on hourly chart we're coming back to common practice - monitoring thrust down and looking for rally to sell. Initially I thought that we could get here DRPO "Buy", that could provide excellent short entry opportunity, but this pattern has not been formed yet, and there is no guarantee that it will. We'll see. But anyway, tactics on hourly chart will be the same - as bearish trend re-established, watch for upside retracement to Fib levels where we could take short position: