- Asian and European equity markets boosted by China’s infrastructure policy announcement
- NZD underperforms again and AUD unchanged in spite of another surge higher in iron ore
- RBA Kent and Ellis speak today, US CPI the focus tonight
- Interest rates: US 10yr treasury yields initially rose from 2.14% to 2.18%, before retracing while 2yr yields rose from 1.89% and 1.94%. Markets are pricing an 80% chance of a Fed fund rate cut by July, with a total of three cuts priced by May 2020.
- Australian 3yr government bond yields slipped from 1.09% to 1.07%, 10yr yields from 1.50% to 1.48%. Markets are pricing a 50% chance of an RBA rate cut at the July meeting.
- EUR rose from 1.1310 to 1.1337.
- USD/JPY initially rose to 108.30 but then fell to 108.45.
- AUD ranged between 0.6947 and 0.6967.
- Underperformer NZD extended yesterday’s decline to 0.6611 before steadying.
- AUD/NZD rose from 1.0540 to 1.0580.
- FTSE +0.3% at 7398, DAX +0.9% at 12156, CAC +0.5% at 5408, Nikkei +0.3% at 21204, ASX 200 +1.6% at 6546, Shanghai Comp +2.6% at 2925
- Dow +0.0% at 26048 S&P -0.1% at 2886, NASDAQ +0.0% at 7822
- Commodities CRY +0.4% at 174.86, Natural gas +1.7%, Cotton -0.5%, Crude Oil -0.4%, Copper +0.1%, Wheat +2.1%, Sugar +1.1% Gold at $1327/oz
AUD Thoughts/Technical Outlook
AUD remains in a tight range with markets now await tomorrow’s Australian employment data. With the RBA highlighting the labour market as a specific data piece for their next (and future) rate decisions, and with a July cut currently priced at 50%, and a full cut priced by August, there is still plenty of room to move either way on any meaningful miss from the forecasts.
Today sees the release of China’s CPI and PPI inflation data. Markets forecasts expect CPI inflation to increase to 2.7% y/y (from 2.5%), owing to a low base and strong food, especially fruit, prices. PPI inflation could moderate to 0.6% y/y from 0.9%, largely driven by falling commodity prices. For example, Brent crude oil was down 11.4% in May, while the Nanhua industry index dropped 0.5%.
Technical levels to watch for
AUDUSD hemmed within recent ranges and should remain well supported if we dip toward 0.6940 while resistance remains around the 0.7040/50 region which coincides with the recent highs.
Event Risk Data Today
- NZ: Migration for April is released, as is electronic retail sales for May which is expected to have gained 0.5%.
- Australia: Westpac-MI Consumer Sentiment was last at 101.3. This update will provide consumers’ reaction to the Federal election result and June RBA rate cut. RBA Assistant Governor (Financial Markets) Kent gives remarks at the Australian Renminbi Forum, Melbourne 9:25 am. RBA Assistant Governor (Economic) Ellis gives a speech titled “Watching the Invisibles”, Melbourne 7:00 pm.
- China: May CPI and PPI are released.
- Euro Area: ECB President Draghi speaks at the “Resilience to Global Headwinds” conference in Frankfurt.
- US: May CPI is expected to show annual inflation edging down to 1.9% from 2.0% while core inflation holds at 2.1%.