Overnight Market Headline
- The US 10yr treasury yield rose from 2.50% to 2.56%, and the 2yr yield rose from 2.31% to 2.35%, as bond markets recalibrated to a less dovish Fed outlook.
- The chance of a Fed rate cut by December, implied by Fed fund futures, decreased from 70% to 65%
- Gold prices slumped to an over four-month low after the U.S. FOMC axed any hopes for a rate cut in the near term, subduing demand for non-interest-bearing Gold. Spot gold was down 0.5% at $1,270.22 per ounce.
- China's iron ore futures rose and posted their fifth straight monthly gain - construction steel marked its best month since July 2018, buoyed by hopes demand will remain firm after Labour Day holidays. Spot iron ore was steady at $95.00 a tonne.
- LME copper dropped 1.1% to trade at $6,167 a tonne in closing rings, the lowest since Feb. 15. The close is below the 200-day moving average at $6,192, which could lead to further losses.
- Oil plunged, with U.S. crude dropping almost 3% as the market grappled with oversupply fears as increased U.S. sanctions on Iran had more gradual impact than expected and U.S. crude oil inventories rose sharply. U.S. crude settled down $1.79 or 2.8%at $61.81 a barrel, heading for its biggest weekly fall since February. Brent crude futures fell $1.43 a barrel, or 2% to $70.75.
- The US dollar index is up 0.2% on the day, closing @ 97.84
- EUR fell from 1.1220 to 1.1172
- USD/JPY ranged between 111.35 and 111.65
- AUD fell from 0.7030 to 0.6995.
- NZD fell from 0.6640 to 0.6608.
- AUD/NZD slipped from 1.0595 to 1.0575.
- AUDEUR remained steady, trading in and around 0.6250
AUD tried to climb higher overnight, reaching 0.7020 however a stronger USD across the board saw it fall back towards 0.7000 and breaking to new 0.6990 low’s.
The Fed's steady outlook continued to reverberate in the markets as which affected most currencies and a weaker general commodities complex (base, precious metals and oil markets falling).
AUD is threatening to break to a new four-month low after Fed Chairman Powell’s surprising comments to the market which stunned USD bears, leading it to rally sharply along with U.S. interest rates.
Though diminished by Powell's comments, rate-cut bets remain intact for late 2019 or early 2020. Some reasons for those cut expectations are inflation remaining below the Fed's 2% target and concerns about slow U.S. manufacturing.
Australian short-term rates markets suggest RBA cuts are coming but that easing has been priced in by the market, so the impact will be limited.
The markets are now completely focused on tonight’s Non-farm payroll and ISM reports. If the data undershoots forecasts, the USD could slide and the recent AUD losses could reverse.
Technical Outlook :
Upbeat US factory orders & lingering Powell effect buoy USD. US rates buoyed as well, AU-US spreads widen AUD dips below 0.7000. Techs favour bears, RSIs biased down & 50% Fibonacci of 0.6715-0.7295 pierced again.
Bears not being aggressive as US jobs report looms & market is short AUD. Despite Powell & expected RBA cuts AUD drop not guaranteed. If NFP & AHE undershoot forecasts AUD's April high could be eyed again.
Risk Event Today
- Australian Economic data today : Mar dwelling approvals are expected to fall back 12.5% (Westpac fcs -15.0%) resuming the downtrend.
- Euro Area: (tonight) Apr CPI preliminary is expected to show annual core inflation returning to 1.0% from 0.8% in Mar.
- US: (tonight) April non-farm payrolls is seen to post a solid gain of 185k with the unemployment rate holding at 3.8% and average hourly earnings ticking back up to 3.3% annual growth from 3.2% in Mar.
- Tonight - Apr ISM non-manufacturing is anticipated to lift to 57.0 form 56.1.