7th June 2019 - More volatility in store for the AUD ahead of US employment data (NFP) this evening.

Good Morning,

Market Headlines

-US 10yr treasury yields round-tripped from 2.13% to 2.09% and back, while 2yr yields rose 1.81% to 1.89%. Markets continued to price a Fed fund rate cut by August, with a total of three cuts priced by mid-2020.

- Australian 3yr yields rose from 1.07% to 1.11%, 10yr yields from 1.48% to 1.52%. Market pricing for the July meeting is around 60%

- US trade deficit improved modestly in April to $50.8bn from $51.9bn; exports and imports both fell a sharp 2.2% in the month across a broad base, tariffs, weaker global growth and softening US domestic demand likely all at play. US jobless claims continue to hover in the low-200k region, 218k last week, consistent with a strong labour market.

- ECB extended yet further its forward guidance “at least through 1H 2020” (previously “end of 2019”) whilst it kept other policy measures unchanged, as expected.


- The US dollar index is down 0.3% on the day.

- EUR jumped from 1.1225 to 1.1309 – a six-week high - after the ECB statement did not signal rate cuts.

- USD/JPY ranged between 108.05 and 108.55, the yen underperforming.

- AUD ground slightly higher, from 0.6965 to 0.6994.

- NZD similarly ground up from 0.6620 to 0.6644.

- AUD/NZD ranged sideways between 1.0510 and 1.0540.

Commodity Markets

- Brent crude oil rose 2.4% to $62, as some traders questioned the accuracy of data yesterday showing that US petroleum stockpiles posted the largest monthly rise since 1990.

AUD Thoughts/Technical Outlook

AUD/USD pair stands at around 0.6970 at the end of the US session, having flirted with the 0.7000 level post-ECB announcement sending the dollar down. The pair recovered part of the ground lost Wednesday and holds on to weekly gains, helped by local data, as the country's trade surplus missed estimates, but held close to $5B amid a strong surge in exports. During the upcoming Asian session, Australia will release the AIG Performance of Construction Index for May, previously at 42.6. The country will also release April Home Loans and Investment Lending for Homes.

The fact that the AUD/USD pair is unable to run beyond the 0.7000 level, despite broad dollar's weakness, is somehow discouraging for bulls and may resume its decline this evening, particularly if the US employment report results upbeat (Non-Farm Payrolls). Ahead of the event, the pair is struggling to hold above a bullish 20 SMA, which continues heading north above the larger ones, while technical indicators turned sharply lower, the Momentum indicator challenging its mid-line and the RSI just above the 50 level.

Support levels: 0.6940 0.6895 0.6865

Resistance levels: 0.6990 0.7015 0.7045

Event Risk Data Today

- NZ: Q1 building work is expected to rise by 1.1% (Mkt at 0.7%), and will be an input into Q1 GDP estimates.

- Australia: Apr housing finance is expected to show the number of owner occupier approvals unchanged in the month.

- US: May non-farm payrolls are anticipated to increase by 175k and hold the unemployment rate flat. The annual pace of average hourly earnings is seen to hold at 3.2%, having eased back slightly from Mar’s 3.4% pace. Fedspeak involves Daly to university students in Singapore