28th June 2019 - AUD tests 0.7000 as greenback ignores GDP data. Attentions now turn to G20 Summit.

Good Morning,

Market Headlines

- US 2yr treasury yields fell from 1.80% to 1.74%, 10yr yields from 2.07% to 2.00%. Markets are pricing 33bp of easing at the July meeting, with a total of four cuts priced by mid-2020.

- Australian 3yr government bond yields slipped from 0.94% to 0.92%, 10yr yields from 1.37% to 1.32%. Markets are pricing a 70% chance of an RBA rate cut at the July meeting

- US pending home sales rose 1.1% in May, close to expectations, a welcome gain aided by lower interest rates.

- US Q1 GDP growth was left unrevised at a 3.1% annualised pace (vs 3.2% expected); consumer spending was nudged lower while business investment was stronger than previously estimated. The lack of any meaningful revisions leaves Q2 GDP growth tracking estimates largely untouched at around 2%.

- The European Commission’s economic and business sentiment gauges tumbled to three year lows in June; their main indicator of economic confidence dropped to 103.3 from 105.2, its lowest since August 2016.

- German consumer prices accelerated more than expected in June, +0.3%, lifting the annual rate to 1.6%


- The US dollar index is unchanged on the day.

- EUR ranged sideways between 1.1350 and 1.1380.

- USD/JPY is unchanged at 107.75 after a brief rise to 108.16.

- AUD extended a seven-day old rally from 0.6990 to 0.7007.

- NZD similarly rose from 0.6680 to 0.6702.

- AUD/NZD slipped from 1.0475 to 1.0445.

AUD Thoughts

- US economy expanded 3.1% in the first quarter as expected.

- US Dollar Index fails to break out of range following the uninspiring data.

- Attention turns to US-China trade talks at G20 summit.

The AUD/USD pair inched higher on Thursday and touched the 0.70 mark for the first time in more than two weeks as today's data from the United States failed to help the greenback gain traction.

The lack of significant macroeconomic data releases from Australia is allowing the greenback's market valuation to continue to drive the pair's action today. In its third estimate, the U.S. Bureau of Economic Analysis (BEA) reported that the real-GDP in the first quarter expanded by 3.1% on a yearly basis to match the previous estimate and the market consensus.

Other data from the U.S. revealed that the number of citizens applying for unemployment benefits rose by 10,000 to 227,000 in the week ending June. The US Dollar Index, which spent a large part of the day in a relatively tight range near the 96.20 mark was last posting small daily losses.

Meanwhile, the Chinese news outlet Global Times today claimed that the fact that President Trump continues to use bullying tactics like threatening to impose additional tariffs will have a negative impact on this weekend's talks between Trump and Chinese President Xi. Nevertheless, these headlines don't seem to be weighing on antipodeans for the time being and investors will remain focused on fresh developments surrounding the trade negotiations.

Event Risk Data Today

- NZ: consumer confidence (ANZ) remains in positive territory, helped by record low mortgage rates and a solid jobs market.

- Australia: May private sector credit is expected to show continued sluggish growth of 0.2%.

- Japan: BOJ summary of opinions from the June meeting is released.

- China: Q1 current account follows a Q4 surplus of $58.6bn.

- Euro Area: Jun CPI preliminary is expected to show annual core inflation returning to 1.0%yr from 0.8%yr.

- US: May personal income is anticipated to rise 0.3% with personal spending up 0.5%. The PCE deflator is expected to show both headline and core inflation at 1.5%.

- The G20 Summit in Japan begins today and concludes on Saturday. The meeting between Trump and Xi will be the key focus.

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