- US interest rates remained depressed, 10yr treasury yields probing 1.97% - a three-year low, and 2yr yields nudging 1bp lower to 1.97% - a two-year low. Markets are now pricing 34bp of easing at the July meeting, with a total of four cuts priced by mid-2020.
- Australian 3yr government bond yields ranged between 0.87% and 0.90%, 10yr yields between 1.28% (record low) and 1.32%. Markets are pricing a 75% chance of an RBA rate cut at the July meeting.
- The US dollar index is down 0.5% on the day.
- EUR rose from 1.1260 to 1.1317.
- USD/JPY fell from 107.90 to 107.20.
- AUD extended a two-day old rally from 0.6900 to 0.6936.
- NZD similarly rose from 0.6560 to 0.6590.
- AUD/NZD ranged between 1.0480 and 1.0525.
- US Dollar off lows but still holds to most of the post-Fed losses.
- Australian Dollar losses strength as equity prices pull back from highs.
The rally of the AUD/USD pair that started after the FOMC meeting on Wednesday and pushed it back above 0.6900, run into resistance at 0.6935. As of writing, trades at 0.6915, 40 pips above yesterday’s close and still holding a bullish tone.
The move higher in AUD/USD was boosted by the dovish Fed meeting. The greenback accelerated the decline today as markets price in more rate cuts from the Fed. Data released today in the US came in mixed with a decline in jobless claims and also a larger-than-expected slide in the Philly Fed. The numbers were ignored by market participants that continue to focus on the implication of yesterday’s FOMC statement. In Australia, the central bank meets on July 2 and a rate cut is mostly discounted.
The rally in global stocks also added support to the pair, but over the last three hours it lost momentum and Wall Street indexes move off highs, favouring the correction in AUD/USD.
From a technical perspective, the area around 0.6935 is a strong barrier that if broken could lead to a test of the next critical level seen at 0.6950. On the flip side, the 0.6900 area has become a key support.
Event Risk Data Today
- Japan: May CPI is expected to show annual headline inflation declining to 0.7%yr from 0.9%yr.
- Jun Markit Flash PMI’s are released for Japan, Europe and the US. The previous read on manufacturing showed the US declining to 50.5, joining softness seen in Japan (49.8) and Europe (47.7). Services have so far held up a bit better, Europe last at 52.9 and the US at 50.9.