Markets were rattled by some strong US economic data, raising concerns the Fed may eventually tighten sooner than indicated. The S&P500 is down 0.4%, and bond yields and the USD are higher. US 2yr treasury yields rose from 0.15% to 0.16%, while the 10yr yield rose from 1.59% to 1.63%. Commodities, Brent crude oil futures fell 0.2% to $71.20, copper fell 2.9%, and gold fell 1.9%, while iron ore rose 1.1% to $210.85 (an 18% rebound since late May).
US Federal Reserve announced it would start unwinding one of its programs set to support the economy throughout the pandemic. "Portfolio sales will be gradual and orderly and will aim to minimize the potential for any adverse impact on market functioning”
The news sent stocks lower and the dollar higher, with the latter’s rally fuelled by upbeat US data. The country published the ADP survey on private jobs creation, which posted a whopping 978K in May, largely surpassing the 650K expected. Initial Jobless Claims for the week ended May 28 printed at 385K, better than the 395K expected and the lowest reading since the pandemic started.
Overnight Currency Ranges
AUD/USD 0.7646 0.7753 two-month low
EUR/USD 1.2118 1.2214
GBP/USD 1.4085 1.4202
USD/JPY 109.56 110.31 two-month high
NZD/USD 0.7124 0.7241 one-month low
USD/CAD 1.2031 1.2120
USD/CNH 6.3793 6.4006
AUD/JPY 84.32 84.98
AUD/NZD 1.0704 1.0733
AUD/USD plummeted to 0.7646 area on dollar’s demand, all eyes turn now to the US Nonfarm Payrolls report this evening and substantial job gains could further fuel the USD. The AUD/USD finally broke downside support overnight on its way to a low of 0.7646. Demand is now expected at 0.7625 and again ahead of 0.7600 while topside resistance is now expected at 0.7720 but more meaningfully ahead of 0.7815.
Should the Payroll numbers be strong, the aussie has the potential to breach 0.7600 with 0.7580/60 a key level.
Event Risk Data Today
Australia: Markets expect April to show a 3.0% rise in housing finance approvals, with a further decline in construction-related finance associated with the Federal HomeBuilder scheme more than offset by an uplift in investor lending. The wider picture on established housing markets remains positive with both sales volumes and prices sustaining strong gains through April and May.
New Zealand: Markets forecasting a further 1% rise in building work put in place in the March quarter. That’s underpinned by an expected 2% rise in residential building work as the demand for new homes continues to surge. Non-residential building activity is expected to post another modest fall.
Euro Area: The market is looking for a 1.5% fall in April retail sales; strength will build as the economy continues to reopen.
US: Markets expect a strong rebound in Nonfarm Payrolls in May with follow through in coming months. The US is still more than 8 million jobs shy of the level seen prior to the pandemic, and the economy is opening quickly as the vaccine drive takes effect. To the 800k call for May (market median is 674k), there is arguably upside risk. This is also the case with respect to revisions to April. As more people come back to the labour market, the downtrend in the unemployment rate will slow. In May expectations an incremental fall to 6.0%. Average hourly earnings should rise 0.3% in May, and remain choppy month to month for a while yet. April factory orders have been showing robust growth, but are constrained by transport orders (market f/c: -0.3%). Fed Chair Powell will take part in the BIS panel on climate with the ECB’s Lagarde.