AUD: Asia Wrap - AUD/USD Trades Heavy, Looking Towards Q2 CPI Tomorrow
The AUD/USD has had a range of 0.6512 - 0.6530 in the Asia- Pac session, it is currently trading around 0.6520, -0.02%. The pair could not hold onto its early gains yesterday and slid lower as the USD bounced strongly across the board. The pair failed to gain any momentum above 0.6600 last week and now awaits a very busy calendar this week which could have meaningful implications for risk. Locally the Australian Q2 CPI tomorrow will be closely watched and could provide a catalyst for some movement. Worth keeping in mind it is corporate month-end today and this could see some further headwinds for USD shorts. First support around 0.6450 then the more important 0.6350 area.
- AUSTRALIA: Q2 Core Inflation Expected To Be 0.1pp Above RBA Forecast At 2.7%. Q2 CPI prints Wednesday and will be monitored closely given that the RBA relies on this series with the monthly version not yet complete (due to take place on November 26). Headline inflation continues to be distorted by federal & state government electricity rebates and so attention will remain on the underlying trimmed mean. The RBA’s May forecast was for 2.6% y/y and so a print close to this would likely result in an August cut but steady around Q1 may add doubt.
- CBA Warns Higher CPI Print Could Keep RBA Cautious. A 2.8% print could “be a somewhat awkward 0.2ppt above” the RBA’s latest forecast, but CBA would still expect a 25bp cut on August 12 but see the “decision as not as clear cut as current market pricing suggests”.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6600(AUD968m), 0.6400(AUD323m). Upcoming Close Strikes : 0.6550(AUD1.01b July30), 0.6600(AUD1.38b July 31), 0.6465(AUD1.01b July31) - BBG
- CFTC Data shows Asset managers added a decent clip to their shorts -53959(Last -38267), the Leveraged community reduced their own shorts to -12010(Last -20048).
- AUD/JPY - Asia-Pac range 96.68 - 96.95, Asia is trading around 96.80. The pair could not hold above 97.00 yesterday. The support between 95.00 - 96.00 held very well last week and the pair is looking to regain its momentum for a move higher. The event-risk coming up this week could provide some short-term headwinds.
Fig 1: AUD/USD spot 120min Chart
Source: MNI - Market News/Bloomberg Finance L.P
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
