6th May 2021 - AUD wavers around mid-0.7700s, China open, RBA’s Debelle eyed

Good Morning,

Market Headlines

Sentiment improved amid more upbeat US economic data. The S&P500 is currently up 0.1% (having pared gains after news of a removal of patent protection for Covid vaccines), and the AUD and NZD are stronger, while bond yields are slightly lower after Fed officials downplayed inflation risks.

Overnight Currency Ranges

AUD/USD 0.7705 0.7755

EUR/USD 1.1986 1.2026

GBP/USD 1.3877 1.3925

USD/JPY 109.14 109.48

NZD/USD 0.7143 0.7218

USD/CAD 1.2252 1.2310

USD/CNH 6.4782 6.4933

AUD/JPY 84.26 84.69

AUD/NZD 1.0736 1.0786

AUD Thoughts

AUD/USD remains choppy around 0.7740-50 this morning, after a 0.52% daily gain the previous day. The US dollar’s pullback, on the back of mild risk-on mood, favoured the Aussie bounce inside the typical 130-pip trading area observed since mid-April. However, a lack of fresh catalysts and cautious sentiment ahead of China’s first trading day of the week and the key data/events from abroad seem to test the pair’s upside momentum off-late.

Will China v/s US trouble the bulls?

In the last few days, policymakers from the West have criticized China and Russia for various reasons but a three-day off in Beijing restricted the dragon nation from a strong response that it generally gives. Hence, AUD/USD traders are waiting for how Xi Jinping and the company battle the broad moves against their policies and belief.

On the other hand, US ISM Services PMI and ADP Employment Change for April followed the suit of recent US economics that back market optimism despite easing from March’s stellar figures. While the outcomes doubt strong hopes from Friday’s US employment data, reflation fears are gradually easing, which in turn backs the risk-on mood and US Treasury yields. From Australia, second-tier PMIs and housing figures came in mixed.

It’s worth mentioning that US Treasury Secretary Janet Yellen’s U-turn on rate hikes precedes multiple Fed policymakers who rejected the idea of policy normalization at this stage. Some among them, like Boston Fed President Eric Rosengren, noted that significant slack remains in the economy, adding that inflation and inflation expectations look stable.

Looking forward, China’s reaction, Japan’s open and risk catalysts will be the key for fresh impulse ahead of RBA Deputy Governor Guy Debelle’s speech around 09:00 AM GMT. However, the major market attention will be on Friday’s US Nonfarm Payrolls.

AUD/USD remained in a relatively tight range overnight with all key technical levels remaining in place. The next level of demand can be expected at 0.7600 while topside, the key area remains 0.7815-25.

Event Risk Data Today

Australia: RBA Deputy Governor Debelle will be speaking at the Shann Memorial Lecture (Perth) on “Monetary Policy during Covid”, 7.00pm AEST.

NZ: Markets expect that building consent numbers will rise by 5% in March. That’s due to ongoing firmness in medium-density dwelling consents, especially in Auckland. This month’s result may be dampened by the higher Covid Alert level early in the month. The preliminary release of the May ANZBO business survey will give us a better view on how the trans-Tasman travel bubble is affecting businesses. The return of some tourism into the country could mean even stronger intentions for investment and employment. Underlying inflation gauges will continue to be an area worth watching. In recent months, we have seen a record number of firms reporting an increase in costs.

Asia: April Nikkei Services PMIs are due for China and Japan.

Euro Area: Retail sales are expected to lift 1.6% in March, and continue to gather momentum as the recovery builds.

UK: The BoE will announce its May policy decision. The Bank Rate is widely expected to remain on hold, but the BoE’s growth forecasts should be revised upwards.

US: After hitting a fresh pandemic low last week, initial jobless claims should see the downtrend continue (market f/c: 535k). The Federal Reserve will release its May Financial Stability Report, and the FOMC’s Mester and Kaplan will speak.

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