AUD: Asia Wrap - AUD Under Pressure, Best Expressed In The Crosses
The AUD/USD has had a range of 0.6484 - 0.6511 in the Asia- Pac session, it is currently trading around 0.6500. The AUD has been under pressure for most of our session as the move higher in risk seems to be stalling. Some good demand was seen today back towards the 0.6480 area once more. The AUD/USD is struggling for direction as the USD continues to be put under pressure at the same time, the AUD though is a clear underperformer against the crosses.
- RBA: VIEW: Softer Inflation Outlook Drives Westpac’s Rate Forecast Down. While Westpac continues to expect the RBA to be on hold in July with the next cut in August coinciding with updated staff forecasts, it is now forecasting the trough in the cash rate at 2.85% in May although it could be March if inflation and the labour market disappoint.
- “The arguments in favor of doing more than 50bps more (two cuts) are building. In particular, the outlook for inflation is shifting in the face of slowing population growth and a handover from public to private sector demand growth that is looking shakier”
- “It is possible that some of these cuts come a bit faster than the ‘cautious’ path we currently have penciled in”
- The AUD continues to see demand just below the 0.6500 area, but the inability to break above 0.6550 on multiple occasions will have the bulls a little concerned.
- Price remains in the 0.6350 - 0.6550 range, a sustained break above 0.6550 is needed for the move higher to accelerate.
- Expect buyers to continue to be around on dips while the support in the AUD holds, a close back below 0.6350 is needed to challenge the newly formed uptrend. AUD underperformance continues to be better expressed against the crosses.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6600(AUD643m). Upcoming Close Strikes : 0.6500(AUD 447m June 13), 0.6450(AUD426m June 16)
AUD/JPY - Today's range 93.31 - 94.06, it is trading currently around 93.60. Price has turned quickly lower again with the first whiff of risk turning down. We are back below the level it was trading pre NFP, if this pair closes down here it will put in a lower high. A break back below 91.50/92.00 is needed to reignite the momentum lower.
Fig 1: AUD/JPY spot Hourly Chart
Source: MNI - Market News/Bloomberg Finance L.P
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
FOREX: Antipodean Wrap - AUD & NZD Outperform Thanks To China
The S&P is down 0.39% this morning in the Asian session. Some intra-day retracement is to be expected but the broader risk-on move might still have a couple of days to play out as the price action shows the market was not expecting such a positive outcome so quickly. The Westpac May consumer sentiment report for Australia rose 2.2%m/m to put the index back at 92.10. We remain sub recent highs, with 95.9 recorded back in March of this year. The NAB Australian business survey saw conditions ease to +2 from a revised +3 reach in March. On the confidence front, the reading edged up to -1 from -3 prior. These headline measures aren't suggesting a sharp turnaround in domestic economic growth momentum in the near term. The USD/CNY fix was set at 7.1991. Today's fixing is sub the 7.2000 level for the first time since Apr 7. It comes despite the stronger USD index levels overnight, although some offset was from lower USD/CNY levels.
- AUD/USD - Asian range 0.6361 - 0.6393, the AUD is currently dealing around 0.6400. AUD has outperformed this morning benefitting from its close trading relationship with China. Good demand was seen again back towards the 0.6350 support area. A break below 0.6300 needed to reverse direction.
- AUD/JPY - Asian range 94.07 - 94.64, price goes into London trading around 94.60. While the support around 92.00 holds, price is likely to continue testing the Weekly resistance seen towards 96.00 where sellers should remerge.
- NZDUSD - Asian range 0.5847 - 0.5877, going into London trading around 0.5980. The NZD has found demand this morning after dipping overnight. Price is approaching the bigger support back towards 0.5800, this needs to hold for those who believe the USD is set to move lower.
AUD/NZD - Asian range 1.0869 - 1.0888, the Asian session is currently trading 1.0880. The Cross has not backed off once since making a low of 1.0654 on the 23 April, it is now challenging the pivot around 1.0900 a sustained break above would turn the focus higher.
Fig 1 : NZD/USD Spot Daily Chart
- Source: MNI - Market News/Bloomberg
US TSYS: Asia Wrap - Yields Drift Lower
TYM5 has traded slightly higher within a range of 110-02 to 110-08 during the Asia-Pacific session. It last changed hands at 110-07, up 0-02 from the previous close.
- The US 2-year yield has drifted lower, dealing around 3.983%, down 0.03 from its close.
- The US 10-year yield has drifted lower, dealing around 4.45%, down 0.02 from its close.
- “ The House tax committee released key details of the multi-trillion dollar tax-cut bill President Trump is seeking to enact as his signature legislative achievement this year.”(BBG) This would add to the easing if passed and provide another tailwind for risk.
- The 10-year Yield range seems to be 4.10% - 4.5%, price has bounced nicely off the 4.25/30 support, price is now testing the upper bound of the range around 4.45/50%. A sustained break above this level would see another round of selling targeting the 4.75% area.
- MNI US CPI Preview - The broad assumption is that April is too early to have seen the impact from sharp increases in tariffs in April, with summer months more likely as inventories are reduced after significant front-running.
- However, Monday’s significant cooling in US-China tensions - with US tariffs on China temporarily being cut from 145% to 30% and China tariffs on US from 125% to 10% for a 90-day period - will see this report viewed in a different light again.
- That said, while April’s data could be glossed over as unrepresentative of ongoing inflation dynamics, the risks to an outsized market reaction tilt to the hawkish side (albeit with Monday’s further hawkish readjustment likely limiting the magnitude). Weaker-than-expected data could be shrugged off as the calm before the storm. Stronger April inflation pressures could be a signal that firms are already raising prices.
- Data/Events : US CPI Tomorrow
CHINA: Bond Futures Remain Stable
- China bonds have been very stable over the last two weeks as the PBOC keeps a tight reign on liquidity with limited injections via the OMO.
- The 10YR bond future down -0.02 at 108.66 and is at the mid-point between the 20-day EMA of 108.81 and the 50-day EMA of 108.59.
- The 2YR bond future is up +0.03 at 102.35, yet remains below all major moving averages. The nearest is the 20-day EMA at 102.38
CGB's are stronger today with the 10YR at 1.66% (-1.5bp lower today).
