31st May 2021 - The dollar is not ready to change course

Good Morning,

Market Headlines

US President Biden issued his first full budget proposal, containing more than USD $6 trillion in spending over the next fiscal year. Large scale new spending would be paired with significant tax increases on corporations and the wealthy. Enacting this into law will be difficult, though, with Republicans almost uniformly opposed to much of the spending and all of the tax increases. US equities remained elevated, helped by a supportive Biden budget as well as solid economic data. The S&P500 closed up 0.1%, although risk-sensitive currencies underperformed, and bond yields fell slightly amid month-end rebalancing.

Commodities, Brent crude oil futures rose 0.2% to $68.72, copper rose 0.4%, and gold rose 0.4%, while iron ore rose 0.4% to $188.25.

Overnight Currency Ranges

AUD/USD 0.7677 0.7747

EUR/USD 1.2133 1.2205

GBP/USD 1.4137 1.4205

USD/JPY 109.74 110.20

NZD/USD 0.7214 0.7292

USD/CAD 1.2063 1.2120

USD/CNH 6.3587 6.3815

AUD/JPY 84.56 85.15

AUD/NZD 1.0612 1.0656

AUD Thoughts

A quiet day ahead with the US out for the Memorial Day holiday. China’s PMIs are likely to remain robust in May, with the manufacturing sector continuing to benefit from strong external demand. The price-related sub-indexes are worth noting in this month’s survey, which correlate well with the sequential growth of the PPI – policymakers have been harsh on containing the rapid commodity prices surge since mid-May, and we may see the impact from those administrative measures in May’s survey. The picture on the services sector is more ambiguous. China’s vaccine rollout has been accelerating since mid-April, but there have been sporadic COVID cases in three provinces in May, which could depress sentiment.

AUD/USD cleared some downside support on Friday on its way to a low of 0.7677. Further support is expected as close at 0.7640/50 while offering interest remains thick ahead of 0.7815.

Event Risk Data Today

Australia: For April, markets expect a 0.4% gain in private credit and annual growth of 1.4%. Housing credit grew by 0.54% in March with the sector in a strong upswing, responding to record low rates and government incentives. Business credit is turning the corner, posting a 0.3% gain in March to still be lower over the year, down by 2.6%. Businesses are optimistic and are taking advantage of generous tax incentives for investment spending. The May MI inflation gauge will be released, after gaining 0.8% over the last 2 months.

New Zealand: The final release of the May ANZBO business survey will give us a closer look at the breakdown of conditions across industries. Over the past month, economic conditions have been boosted by the establishment of the Trans-Tasman travel bubble. The Budget also came out since the preliminary result was released.

China: The May official non-manufacturing (market f/c: 55.1) and manufacturing (market f/c: 51.2) PMIs will be released. Recent stronger growth in the services index indicates that this sector is catching up and the recovery is balancing out.

US: Memorial Day Holiday.