- Broad risk off tone - US equities drift lower with IT leading the decline
- Sentiment not helped by non-committal Powell while Bullard pushes back on a 50bps cut – UST yields volatile but little changed
- US will not accept conditions on tariffs, but is prepared to put on ice additional tariffs if China agrees to resume negotiations
- USD recovers a bit of ground - Kiwi flies ahead of RBNZ decision today
- The US dollar index is up 0.2% on the day.
- EUR fell from 1.1410 to 1.1344.
- USD/JPY rose from 106.80 to 107.40.
- AUD is little changed at 0.6960, after initially extending a week-old rally to 0.6968, and then falling to 0.6942 on the Fed comments.
- Outperformer NZD extended its week-old rally, from 0.6640 to 0.6661.
- AUD/NZD continued to probe the downside, the lowest since 3 April.
The Australian dollar pulled back a bit during the trading session on Tuesday, but then shot above the 50 day EMA. That is an extraordinarily important moving average, but I believe that the 0.70 level above is much more important, psychologically and the scene of selling pressure previously.
With all of that being said, we are heading towards the G 20 this weekend, which of course will focus on the US/China trade talks. Signs of exhaustion should be taken as nice selling opportunities as long as we can stay below the 0.7060 handle. At that point, we could change the entire trend if we break above there, but between now and then I would not be surprised at all to see this market get exhausted. I think some of the sellers have done a bit of short covering heading towards those crucial meetings between the Americans and Chinese, which will obviously move the Aussie as Australia is a major contributor to the Chinese economy as far as raw materials are concerned.
That being said, if there’s any disappointment at all the Australian dollar will turn right back around. At this point, it’s very likely that the talks will disappoint, and quite frankly I think it’s only a matter of time before we break down again. That being said, the 0.68 level underneath is massive support so I don’t know that we break through there, but I do think that we are getting a bit overextended heading into what is a wildcard.
Event Risk Data Today
- NZ: The RBNZ OCR Review this afternoon (2pm) will produce a one-page statement and a set of minutes. The consensus expectation among analysts is for an on-hold decision, accompanied by a signal of a potential rate cut in August. The OIS market is pricing only a 20% chance of a cut today but fully pricing August.
- UK: BOE Governor Carney gives a Testimony to Parliament on the BOE’s Inflation Report.
- US: May durable goods orders are expected to edge down 0.3% following a 2.1% decline in Apr. Core capital goods orders are seen to be broadly flat (+0.1%), after a 1.0% drop. Fedspeak involves Bullard giving welcoming remarks (8:30 am Sydney time) and Daly on “The Dual Mandate in a Flat Phillips Curve Environment”.