Q1 GDP Figures Due This Morning
AUD
The Aussie Dollar was largely mixed against most majors, with strong gains against the Kiwi offset by losses against the Greenback, and other pairs travelling on either side of even. Asian equities were mostly lower on the close, with the Nikkei -0.3% while the Hang Seng was the only winner for the day, gaining 1.4%. The ASX finished 1% lower with tech leading the losses. Commodities performed poorly over the past 24 hours, with Gold and Silver losing out -0.4% and -1.0% respectively, Iron Ore losing out -1.6%, and Copper losing out -0.6%. Positive news from China showed that May PMIs came better than expected. The Manufacturing PMI printed a solid 49.6, higher than the 49.0 expected. The Non-Manufacturing PMI index rose by 47.8 vs. 45.5 estimations. The previously mentioned, alongside some restrictions lifted in Beijing and Shanghai, paint a hopeful scenario for the second-largest economy and Australia’s largest trading partner. The Australian dollar was further supported by the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June amid the upside risks to inflation. That said, resurgent US dollar demand held back traders from placing aggressive bullish bets around the AUDUSD pair and kept a lid on any meaningful upside, at least for the time being. In the day ahead, the Australian economic docket would feature the GDP for Q1, along with China’s Caixin Manufacturing PMI for May.
USD
AUDUSD performed poorly in the last 24 hours, flirting with 4 day lows of 0.7146, coming back up to trade at 0.7178 this morning. Sentiment shifted negatively as month-end flows boosted the greenback, and US Treasury yields rose. US equities did not fare well yesterday, with the Dow, S&P 500 and the NASDAQ all losing out -0.7%, -0.6% and -0.4% respectively. The US dollar made a solid comeback from over a one-month low touched on Monday amid a sharp spike in the US Treasury bond yields, bolstered by the hawkish comments from Fed Governor Christopher Waller. Speaking at an event in Frankfurt, Waller backed the case for a 50bps rate hike for several meetings until inflation eases back toward the central bank’s goal. US housing data was a little mixed with the FHFA House Price Index rising by 1.5% in March though this missed forecasts of 2.0% while Case Shiller House Prices rose 2.42% MoM and 21.17% YoY, beating respective expectations of 1.90% and 20.0%. Further data coming in the form of May Chicago PMI which printed at 60.3, up from 56.4 and beating expectations of 55.0. Also released and US Consumer Confidence for May printed at 106.4, down from 108.6 though better than expectations of 103.7. Little reaction to any of the data points. On the US front, the US economic calendar would feature the US ISM Manufacturing and Non-Manufacturing PMIs, US employment data, led by the Nonfarm Payrolls, and the ADP and JOLTs openings report.
EUR
AUDEUR trades slightly higher this morning, having touched almost 4 week highs of 0.6720, trickling back down to trade at 0.6685 at time of writing. European markets generally closed sharply lower with -1.4% type losses for the CAC and DAX. Sentiment shifted sour as the Eurozone reported inflation for May, which increased by 8.1% YoY, higher than the 7.8% foreseen, triggering worries about elevated prices and a global stagflation scenario. Core inflation also beat consensus expectations of 3.6%, coming in at 3.8%. The ECB’s Visco said the negative rate policy can now be left behind and that future rate hikes should reflect growth uncertainty. Meanwhile, ECB Chief Economist Philip Lane has advocated two consecutive interest rate hikes by 25 basis points (bps) in June and September. This has bolstered the odds of a rebound in the ECB’s interest rate curve. Going forward, investors will focus on the speech this evening from ECB President Christine Lagarde and the release of the eurozone Unemployment Rate. Considering the galloping inflation levels, investors should brace for hawkish commentary from ECB’s Lagarde. Along with this, the European economic docket contains Manufacturing PMI data due to be released this evening.
GBP
AUDGBP trades marginally higher this morning, having skimmed highs of 0.5708, dipping back down to trade at 0.5695 this morning. The FTSE managed to outperform European equities, making modest gains on the day of +0.1%. Agitations over UK PM Boris Johnson’s party during the covid-led lockdowns join the disappointment of British business leaders over the Northern Ireland Protocol (NIP) to weigh on the GBP prices. On the same line are the doubts over the Bank of England’s (BOE) role in taming inflation. In an assessment of the UK’s economic prospects, the impact of Brexit and the potential ‘politicization’ of monetary policy, investors may dump the pound after sustained weakness. Brexit is creating unique challenges, resulting in severe supply-side problems. Only some lower-tier data released in the upcoming session, some Final Manufacturing PMI data which won’t grab major attention.
NZD
AUDNZD trades higher this morning, having touched 12 day highs of 1.1036, drifting back down to trade at 1.1013 at time of writing. There was some downbeat Kiwi data released yesterday, the headline ANZ Business Outlook Index for May dropped to -55.6% from -42.0% a month earlier, while the ANZ Own Activity Index dropped to -4.7% from 8.0% previously. That marked the worst reading since April 2020, when much of the global economy was under lockdown due to the initial spread of Covid-19. With no local data today, the immediate focus will be on Australian Gross Domestic Product data and more broadly on the state of global risk appetite.