CHINA: Central Bank Injects CNY102.8bn via OMO

The Westpac lead indicator fell 0.06% m/m in May after -0.01% but this resulted in the 6-month annualised rate falling to -0.08%, the weakest since September but importantly signalling that growth could ease to below trend over the second half of the year. The measure peaked in February and has been trending lower since as global uncertainty has risen and some domestic factors were also soft but Westpac believes these local “drags” are “temporary”.

• A disappointing recovery is likely to add to the argument for the RBA to ease policy further, especially if underlying inflation moves towards the 2.5% band mid-point. Westpac continues to expect the Board to be cautious given labour market tightness (May data print June 19) and be on hold on July 8 but then cut 25bp on August 12.
• The domestic economy appears to be struggling due to the end of public spending on some big projects but the private sector remains sluggish. Global uncertainty is also delaying investment decisions.
• A large share of the deterioration in the 6-month rate has been due to the stalling in the recovery of residential building approvals and the drop in hours worked, which hasn’t been helped by higher consumer inflation and unemployment expectations. Commodity and equity prices have also been a drag but to a lesser degree. However, US IP has added to the lead index. 

Australia Westpac LI vs GDP growth

Source: MNI - Market News/LSEG

• CHINA PBOC CONDUCTS CNY156.3 BLN VIA 7-DAY REVERSE REPO WEDS

With the odds of the US becoming involved in the war against Iran increasing everyday, the upward momentum of US equities seem to be stalling. ESU5 +0.12%, NQU5 +0.16%. The window for a peaceful resolution in the middle east seems to be closing and with the US potentially now getting involved, the USD is finally looking to bounce. The AUD upward momentum has stalled against the USD as a result but it is outperforming for the moment in the crosses.

• EUR/AUD - Overnight range 1.7664 - 1.7751, Asia is currently trading around 1.7715. The pair has drifted back towards the support around the 1.76/77 area and while this holds the markets focus will be on testing the 1.8000 area again. If this support fails, the pair will be back in its 1.7200 - 1.7700 range.
• GBP/AUD - Overnight  range 2.0715 - 2.0788, Asia is trading around 2.0700. This pair is back in the middle of its 2.0500-2.1050 range. A break above 2.1050 is needed to see the move higher once more gain momentum.
• AUD/JPY - Overnight  range 93.95 - 94.84, Asia is trading around 94.25. Choppy price action as the pair establishes a range between 92.00 - 96.00. A break back below 91.50/92.00 is needed to see the move lower regain momentum and the focus turn back to the year's lows again.

• AUD/NZD -  Overnight  range 1.0758 - 1.0776, the cross is dealing in Asia around 1.0770. A top looks in place now just above 1.0900, the cross topped out last week towards the 1.0800/25 sell area, but the momentum lower seems to have stalled for now, with the range for June basically being captured within a 1.0750 - 1.0800 range.

  Fig 1: GBP/AUD spot Hourly Chart

  

  Source: MNI - Market News/Bloomberg Finance L.P