The US dollar rose sharply overnight, despite the absence of market-moving news. US equities and bond yields are little changed, though. US 2yr treasury yields ranged between 0.14% and 0.15%, while the 10yr yield ranged sideways between 1.55% and 1.58%.
Commodities: Brent crude oil futures rose 0.2% to $68.75, copper rose 0.2%, and gold fell 0.3%, while iron ore fell 5.6% to $178.15 – now down a total of 24% over the past two weeks.
Overnight Currency Ranges
AUD/USD 0.7731 0.7796
EUR/USD 1.2182 1.2262
GBP/USD 1.4113 1.4175
USD/JPY 108.72 109.18
NZD/USD 0.7222 0.7316
USD/CAD 1.2044 1.2124
USD/CNH 6.3761 6.4120
AUD/JPY 84.27 84.80
AUD/NZD 1.0617 1.0731
AUD/USD remains on the back foot around 0.7745, having dropped the most during this week, while probing the bears on early Thursday morning in Asia. The risk-barometer pair initially jumped to the highest in a week before declining from 0.7797 on the US dollar recovery. However, neither the bulls nor the bears could keep the reins amid light trading and a lack of catalysts, keeping the quote inside a familiar range between 0.7700 and 0.7820.
Searching strong catalysts…
Wednesday turned to be just another day when global markets sought clear direction but failed. Even so, the US dollar index (DXY) managed to bounce off January lows, tracking the US 10-year Treasury yields, as market players seem to believe in the US Federal Reserve (Fed) officials’ repeated rejection of the tapering calls despite accepting a transitory jump in inflation. Elsewhere, the US removed China’s Xiaomi from the blacklist and held talks with Russia over the Nordstorm oil pipeline, suggesting the receding tensions of late. However, the UK’s record imports from Beijing and the following statements of “not to rely much on China” by British Trade Minister Liz Truss confused traders.
It’s worth mentioning that the month-end positioning is likely an additional burden, other than the lack of directives, which recently portrays sluggish markets. Amid these plays, Wall Street benchmarks printed mild gains by the end of Wednesday’s North American trading whereas the greenback remains on the front foot by the press time.
On the data side, Aussie Westpac Leading Index came in weaker than the previous 0.45% to 0.20% but the improvement in the Construction Work Done was notable, +2.4% versus -1.5% prior and +2.2 forecast. Even so, AUD/USD couldn’t cheer the published data as sentiment was largely tracking the US dollar moves.
Moving on, Australia’s first-quarter (Q1) Private Capital Expenditure, expected 2.0% versus 3.0% previous readouts, will be watched for immediate direction. However, the key will be the US Durable Goods Orders for April, market consensus +0.7% versus 1.0% previous, as well as the Fedspeak.
Should the scheduled US data joins the league of recently weak prints and the Fed policymakers stay intact on their words, AUD/USD may have a further downside to witness. AUD/USD remains in its tight range with demand still expected ahead of 0.7700 while topside resistance should materialise between 0.7815/20.
Event Risk Data Today
Australia: For Q1 private business capex, markets predict a gain of 1.6%. The recovery in equipment spending appears to have extended into 2021, up a forecast 5.2% in Q1. Businesses are optimistic, activity is rebounding briskly and tax incentives are generous. On the construction side, the risk is that the downtrend resumes, a forecast -1.6%, tracking softer commencements.
With the economy rebounding more quickly than anticipated, 2020/21 capex plans have recovered somewhat and prospects are for capex to lift in 2021/22. Further upgrades are likely in this survey, conducted over April and into May. Markets expect Estimate 6 of the 2020/21 estimates will be about $125bn, a 3% upgrade on Est 5 (exceeding the 5 year average upgrade of 1.3%). This implies Est 6 is -0.6% below Est 6 a year earlier. Guessing what businesses will guess for Est 2 of 2021/21 is challenging. Potentially, Est 2 will be in the order of $116bn, a sizeable 10% upgrade on Est 1 (the 5 year average upgrade is 6%). Est 2 on Est 2 would be +17% (a comparison flattered by base effects).
The May ABS business conditions survey may give some more information around firm’s responses to the ending of JobKeeper.
China: Industrial profits should continue to show double digit growth in April, with China’s quality growth agenda paying dividends.
US: The downtrend of initial jobless claims is expected to continue, with a further fall to 425k in the week ending May 22. April durable goods orders are expected to rise 0.8%, with the equipment investment outlook remaining positive. Following this, the second estimate of Q1 GDP should remain unchanged at 6.4%. Pending home sales are set to advance a 0.5% in April, although affordability and supply constraints may become a risk in the second half. Finally, the May Kansas City Fed Index is expected to hold around 30.