Global market sentiment: Markets were contained, looking ahead to Friday’s important US labour data. The S&P500 is up 0.2%, bond yields are slightly lower, and currencies are little changed.US treasury yields for the 2yr were unchanged at 0.15%, while 10yr yields fell from 1.61% to 1.59%. Commodities, Brent crude oil futures rose 1.6%, copper fell 1.3%, gold rose 0.3%, and iron ore rose 0.6%.
Overnight Currency Ranges
AUD/USD 0.7715 0.7774
EUR/USD 1.2163 1.2226
GBP/USD 1.4111 1.4182
USD/JPY 109.45 109.88
NZD/USD 0.7209 0.7271
USD/CAD 1.2029 1.2091
USD/CNH 6.3771 6.3909
AUD/JPY 84.78 85.19
AUD/NZD 1.0680 1.0718
AUD/USD remains subdued inside a familiar area around 0.7750, following a volatile day comprising a drop from 0.7773 and a bounce off 0.7714, during early Asian morning on Thursday. In doing so, the Aussie data justifies the typical pre-data caution and a lack of major catalysts. Despite marking nearly 60-pips intraday move, not to forget snapping three-week downtrend, AUD/USD couldn’t overcome the known region surrounding 0.7750 as a light calendar elsewhere joined mixed signals from qualitative catalysts.
In doing so, the Asian markets ignored upbeat Q1 GDP, 1.8% QoQ versus 1.5% forecast, as well as mixed comments from RBA policymakers, namely Deputy Governor Guy Debelle and Head of Economic Analysis Brad Jones.
On the other hand, the Fed policymakers and Beige Book added to the market’s confusion as Philadelphia Fed Bank President Patrick Harker ruled out fears from inflation even as Beige Book portrayed the jump in price pressures. It’s worth noting that optimism towards the US-China phase-one trade deal and hopes of further stimulus from the US and a group led by the International Monetary Fund (IMF) and the World Health Organization (WHO) also failed to offer tailwind to AUD/USD.
Looking forward, Australia’s April month Trade Balance, expected 7900M versus 5574M prior, will join the final reading of the said month’s Retail Sales, likely confirming the 1.1% flash estimations, will entertain AUD/USD traders. Following that the US ADP Employment Change, an early signal for Friday’s NFP and US ISM Services PMI will be closely watched for near-term direction. Although market consensus favour the recovery of AUD/USD prices, risk appetite may probe the momentum traders ahead of the key data on Friday.
AUD/USD remains in its recent range with downside support still coming in at 0.7665 while topside resistance should be meaningful in the 0.7815/20 region.
Event Risk Data Today
Australia: For April, the trade balance surplus widens to a forecast $9.3bn, up from $5.6bn for March, just short of January's record high, $9.5bn. The export uptrend likely resumed in April, up a forecast 7%, $2.7bn, after a brief dip over the past two months. Imports, after back-to-back strong gains, 4.7% and 4.3%, are expected to pull-back, -3.3%, -$1.1bn. The underlying trend, goods imports are recovering as the economy reopens.
Preliminary estimates showed another firm 1.1% gain in April retail sales following a 1.3% rise in March and a patchy start to the year. The gain was led by NSW and Vic, both up 2% with sales flat across the rest of Aus. By store-type, cafes and restaurants were a standout, recording a 2.5% rise. The final release may see slight revisions and will include the full survey detail – sales by store type, state, firm size and online vs in store. Ahead of the May update, the AiG PCI is sitting 2.7pts below its March record high. The Homebuilder program remains key to the strength of the sector.
New Zealand: May ANZ commodity prices should show meat prices coming to the agricultural export price party.
China: The May Caixin Services PMI is expected to hold around 56.2, with the services sector in its 13th consecutive month of expansion.
US: We are looking for the May ADP employment change to print at +650k, although we caution that this measure can be out of sync with the official nonfarm payrolls. Initial jobless claims should continue to grind lower as labour market slack is absorbed (market f/c: 388k). The May ISM non-manufacturing survey is set to show an ongoing expansion of the services sector on vigorous consumer spending (market f/c: 63.0). The FOMC’s Bostic, Harker and Quarles will speak.