1st June 2021 - The dollar ends May on the backfoot

Good Morning,

Market Headlines

Equities fell, but US equity futures are little changed, as are bond yields. US treasury yields implied by futures remained inside the previous days range of 1.58% to 1.62% for the 10yr. Australian 3yr government bond yields (futures) traded around 0.23%, while the 10yr yield slipped from 1.66% to 1.64%.

Commodities, Brent crude oil futures rose 0.9% to $69.30, copper fell 0.2%, and gold rose 0.2%, while iron ore rose 4.9% to $197.50.

Overnight Currency Ranges

AUD/USD 0.7701 0.7741

EUR/USD 1.2183 1.2232

GBP/USD 1.4165 1.4218

USD/JPY 109.35 109.93

NZD/USD 0.7232 0.7282

USD/CAD 1.2061 1.2091

USD/CNH 6.3525 6.3748

AUD/JPY 84.61 84.90

AUD/NZD 1.0625 1.0660

AUD Thoughts

The Memorial Day holiday in the US saw limited movement in the AUD/USD overnight with demand still expected ahead of 0.7660 while topside resistance remains at 0.7815.

Event Risk Data Today

Australia: Strength in the Corelogic home value index has carried into May, with the daily index pointing to another big 2.2% gain nationally, Sydney tracking towards a 3% rise. Markets expect dwelling approvals to show a 10% drop in April, as the boost from the HomeBuilder scheme unwinds.

Alongside this, we will get a raft of Q1 GDP partials. Firstly, on Q1 company profits, markets forecasting a lift of 3.5%; this increase will come at a slower pace than sales revenue - with government support continuing to moderate. Inventories are forecast to rise by 1.0%, up by $1.6bn, to still be some $6bn below the level at the end of 2019. Such an outcome would see inventories add 0.3ppts to activity in Q1 (subject to revisions). For the 2020 year, net exports subtracted 0.8ppts, including a 2.1ppts drag over the second half of the year. The March quarter 2021 has seen a further sizeable subtraction - forecast in the order of -1.1ppts. The current account surplus is forecast to widen from $14.5bn in Q4 to $21bn in Q1, representing around 3.6% of GDP - making history, this will be the 8th consecutive quarterly current account surplus.

Finally, The Reserve Bank Board will announce its June policy decision. The minutes of the May meeting confirmed that the Board will decide on the next stage of its Yield Curve Control and Quantitative Easing policies at its July meeting. As such, the June meeting will be one of ‘marking time’ and discussing the recent run of data.

New Zealand: Markets expect that annual consent issuance will breach fresh record highs in April. The Global Dairy Trade auction should show prices treading water at elevated levels (f/c: 0.0%)

China: We will be looking for signs of supply disruptions in the May Caixin manufacturing PMI, but sentiment should remain upbeat (market f/c: 52.0).

Euro Area: The unemployment rate is expected to hold at 8.1% in April; the relative health of the labour market bodes well for the H2 economic recovery. The May CPI is set to print around 1.9% per year, and while the figure is inflated by base effects, the underlying pace is still muted.

US: A 0.6% rise in April construction spending is likely to be driven almost entirely by the residential sector. The May ISM manufacturing survey is expected to recover some of the ground lost in April, when new orders and output moderated from elevated levels (market f/c: 61.0). The May Dallas Fed Index is expected to hold around 36.5; prices paid have surged ahead in recent prints. The FOMC’s Quarles and Brainard will speak