Overnight Market Headlines
- US President Trump tweeted that “China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal."
- FOMC member Brainard gave a speech on "Fed Listens:" How Does Monetary Policy Affect Your Community”, discussing policy tools and options such as long-term inflation targeting, targeting yields on specific securities.
- ECB President Draghi expected wages to rise, and that stimulus measures have created jobs and are pushing up inflation. He added: "while we don't yet see feedback or the transmission of these higher nominal wages growth into higher inflation" it is a matter of being patient and persistent with the accommodative monetary policy, and “it will come, it will happen".
- In an early Thursday morning interview with Radio NZ, RBNZ Governor Orr said yesterday’s cut was the best choice because it put them ahead of the curve. It also had the benefit of taking pressure off the exchange rate. He said it was too early to tell if another rate cut will be needed.
- The US dollar index is up 0.1% on the day, closing @ 97.50
- EUR slipped from 1.1210 to 1.1183.
- USD/JPY ranged sideways between 110.00 and 110.20.
- AUD slipped from 0.7020 to 0.6985.
- NZD slipped from 0.6600 to 0.6571, but remained above the knee-jerk 0.6527 low response to yesterday’s RBNZ cut.
- AUDNZD, which very briefly spiked above 1.0700 following the RBNZ yesterday, drifted sideways overnight around 1.0640.
- AUDEUR remained within its recent 0.6240/0.6270 trading range
AUD took a brief hit on yesterday’s RBNZ interest rate cut news but soon rallied back to 0.7020, helped by gains against the NZD.
Trade figures out of China yesterday were mixed and had limited immediate impact on currencies. Exports declined unexpectedly but imports surprised on the high side.
Unable to hold onto any gains the AUD did succumb to offshore news / data pressure to fall back below 0.7000 finding 0.6985 lows (where it opens this morning).
AUD has been unable to make substantial headway below 0.7000 and despite heightened U.S.-Sino trade tensions it seems to be stuck in and around 0.7000, which is likely becoming a serious concern for many short sellers.
Markets appear increasingly convinced that the U.S. and China will produce some sort of trade deal that will ‘defuse’ the latest tensions. In the meantime, U.S. interest rate markets are weighing down the USD in the wake of the recent falling out.
Increased trade tensions have driven fed fund futures prices higher, which suggest the chances of Fed rate cuts are growing. Australian short-term interest rates markets continue to price in RBA cuts but the markets suggest it will be a-one-and-done event. Since January 2019 AUD net short positions have increased, but have almost nothing to show for their efforts and may be growing frustrated. Should trade tensions ease, the AUD and emerging market currencies could quite possibly rally on better global growth prospects.
AUD buoyed above 0.7000 for most of NY as trade issues linger. USD/CNH presses higher despite Trump tweet suggesting China wants a deal. AUD sinks, nears 0.6980. RSIs are neutral, doji in place for May, techs are indecisive for now. For now AUD comfortable with trading in and around 50% Fibonacci supports @ 0.7000/0.7005.
Risk Event Data Today
- No Australian Economic data today
- China: Apr CPI and PPI data is released (inflation remains muted with a lack of upstream pressures)
- Tonight - US: Apr PPI is expected to rise 0.3% ahead of tomorrow’s CPI release. Mar trade balance is anticipated to be a deficit of $50.2bn following a $49.4bn deficit in Feb.
- Fed Chair Powell delivers opening remarks at a community development conference. Other Fed speak involves Evans and Bostic.