- US private payrolls rebounded in the June ADP jobs report, albeit to a still mildly disappointing +102k. The service sector ISM fell more than expected in June, to 55.1 from 56.9, a two-year low, though both the new orders and employment sub-indices remain comfortably above 50. The US May trade balance widened more than expected, to $55.5bn from $51.2bn and factory orders were revised down to show a steeper 0.7% fall in May.
- The majority of Eurozone and periphery service PMI’s beat, admittedly low, estimates and so provided a more stable profile for the Final June service and composite PMI’s. However, Markit’s commentary and assessment remains decidedly negative. They project regional 2Q GDP of +0.2%q/q with downside risks ahead suggesting that ECB ought to provide further accommodation.
- Iron ore surged further, up 1.0% to a fresh five-year high of $127.15, the continuing theme being Chinese demand plus limited supply. Since December, the spot price has risen 97%. Brent crude oil rose 2.4% to $63.90 after the weekly EIA update said inventories fell.
- US 2yr treasury yields bounced off 1.73% to 1.76%, while 10yr yields fell from 1.97% to 1.94% - the lowest since 2016. Markets priced 33bp of easing at the July meeting, with a total of four cuts priced by mid-2020.
- Australian 3yr government bond yields bounced off 0.89% to 0.91%, 10yr yields consolidated between 1.29% and 1.31%. Markets are pricing only a 20% chance of an RBA rate cut in August.
- The US dollar index is up 0.1% on the day.
- EUR ranged sideways between 1.1269 and 1.1312.
- USD/JPY rose slightly from 1.06.70 to 107.88.
- Outperformer AUD rose from 0.6990 to 0.7039 – a two-month high.
- NZD also performed well, rising from 0.6680 to 0.6720.
- AUD/NZD rose from 1.0470 to 1.0498.
- Aussie gains for the second-day in-a-row versus US Dollar, resumes upside.
- AUD/USD heads for the highest close since late-April, test 100-day MA.
The AUD/USD pair gained momentum and broke above 0.7000 during the European session. After the beginning of the US session, it rose further and printed a fresh 8-week high at 0.7037. Currently trades at 0.7030, up 40 pips for the day.
The key driver of AUD/USD today has been lower US yields and also an improvement in risk appetite. Equity prices are posting gains across the world. In Wall Street, the DOW JONES gains 0.48% and the NASDAQ 0.59%.
Commodity-link currencies are higher versus the US Dollar. Still, the DXY is up 0.09% on Wednesday. Data from the US did not affect markets. Regarding employment data, the private payrolls measured by ADP showed a gain of 102K in June below the 140K expected while the ISM non-manufacturing PMI came in at 55.1 in June, also missed consensus of 55.9. Activity volume will likely trend lower ahead of the July 4th holiday and will be back to normal probably next week. Before that, on Friday, the NFP is due.
The AUD/USD pair tested today the 200-day moving average that stands around 0.7035. A consolidation on top would point to further gains in line with the main trend. Technical indicators are biased to the upside.
Over the next hours, if AUD/USD is rejected again from above 0.7020/30, it could signal some exhaustion to the upside, increasing the odds of a bearish correction. Support levels might be seen at 0.6990 and 0.6955 (weekly low).
Event Risk Data Today
- Australia: May retail sales are expected to rise 0.2% (estimate +0.1%) with conditions looking to have remained soft during the period.
- Euro Area: May real retail sales are anticipated to show the annual pace edge up to 1.6%yr from 1.5%yr.
- US: It is the Independence Day public holiday, markets are closed.