Summary: The Dollar weakened against all its rivals after last month’s Fed meeting minutes revealed that policymakers re-upped a pledge to keep interest rates near zero. Officials agreed that a recovery in the US economy could be slower than initially thought. It was risk-on once again as optimism rose on the return of businesses due to lifting of lockdown restrictions from the coronavirus. Markets moved ahead of yesterday’s vaccine test failure with global attempts to find a cure for coronavirus is ramped up. Which further took away safe-haven support from the Greenback. The Euro climbed to a two-week peak against the Dollar at 1.0999 (1.0925 yesterday) before easing to finish at 1.0977 in New York. A recently announced proposal from France and Germany for a common fund, seen as moving Europe close to a fiscal union and had many suggesting a turn in the tide for the Euro. The risk-sensitive Aussie and Kiwi extended their advances. Despite a marked fall in Australian April Retail Sales, the Aussie Dollar rose to an overnight and 10-week high at 0.66162 (0.6535 yesterday) before dipping to 0.6595 in early Sydney. The New Zealand Dollar soared to 0.61579 (0.6075) overnight peak, slipping back to 0.6148 after RBNZ Chief Economist Ha suggested that there would be no rate changes until March 2021. Sterling underperformed, finishing little-changed at 1.2238 from 1.2235 yesterday. UK CPI fell to 0.8% in April, its lowest in close to 4 years. The Dollar Index (USD/DXY), a favoured gauge of the Greenback’s value against a basket of 6 majors, dipped 0.2% to 99.178 from 99.578 yesterday. Wall Streets stocks advanced. The DOW added 1.6% to 24,615 (24,205) while the S&P 500 was 1.8% higher to 2,977 (2,922). Bond yields eased. The key 10-year US treasury yielded 0.68% from 0.69% yesterday. Germany’s 10-year Bund yield was flat at -0.47%.
Data released yesterday saw Australia’s ABS April Retail Sales plunge to -17.9% from 8.5% in March. UK CPI fell l to 0.8% in April, missing forecasts at 1.0% and March’s 1.5%. The Eurozone’s Final CPI slipped to 0.3% from 0.4% and lower than expectations of 0.4%. Canada’s April CPI fell to -0.7% from -0.6% previously, and missing forecasts at -0.6%.
On the Lookout: The market’s new-found optimism will be tested today by a data deluge.
Australia starts the day with its Commonwealth Bank Preliminary Manufacturing and Services PMI report. Japan follows with its April Merchandise Trade Balance as well as Imports and Exports. Japan’s Jibun Flash Manufacturing PMI follows.
RBA Governor Philip Lowe speaks at a function hosted by the Financial Services Institute (12.30 pm Sydney time).
Euro area date follow next with French, German and Eurozone Flash Manufacturing and Services PMI data. The UK reports on its Flash Manufacturing and Services data as well as CBI (Confederation of British Industry) Industrial Order Expectations. Canada’s ADP Non-Farm Employment Change kicks off North American reports. The US sees off its Philly Fed Manufacturing Index, Weekly Unemployment Claims, Flash Manufacturing and Services PMI (May), Conference Board Leading Index, and Existing Home Sales. Federal Reserve Chair Jerome Powell speaks at a Covid-19 event.
Trading Perspective: Dollar bears/Currency bulls will take a breather today into the data deluge. Global PMI’s are expected to show improvements, particularly those from the Euro area.
Traders will keep their focus on Covid-19 developments to see if any lifting of restrictions will bring about a second wave. The trade disputes between the US and China as well as Australia and China are far from resolved. All these factors could sour risk appetite, as well as see a Greenback rebound.
AUD/USD – Bullish Sentiment to Chill around 0.6600, Eyes on Lowe, PMI’s
The rally in Wall Street stocks lifted the risk sensitive Australian Dollar to a fresh 10-week high at 0.66162 before slipping to 0.6590 in early Sydney. Despite rising Sino-Australian tensions, and a slump in Australian Retail Sales, the Battler continued its climb higher against the hapless Greenback, defying gravity.
Today the Aussie Dollar faces another test with the release of the Commonwealth Bank’s Australian Manufacturing, Services and Composite PMI reports. Factory Output in May is forecast to climb to 46.5 from 44.1 while the Composite PMI is forecast to improve to 26.4 from 21.7. RBA Governor Philip Lowe is expected to speak and give an update on the coronavirus at a panel discussion hosted by the Financial Services Institute.
AUD/USD has immediate resistance at 0.6620 followed by 06650. Immediate support lies at 0.6570 followed by 0.6540. The air is getting a bit thin for the Aussie Battler up at these levels. A pullback is likely with a range between 0.6530 and 0.6630 envisioned.
NZD/USD – Bird Lifts on RBNZ Turnaround, Negative Rates Still Possible
The RBNZ seems to have made a quick one-week turnaround after its meeting last week where Governor Graeme Orr suggested the possibility of negative rates. Yesterday, RBNZ Chief Economist Yuong Ha said that they expect to hold the OCR (Official Cash Rate) at its current level until March 2021. The lift in risk assets overnight as well as the broad based weaker US Dollar also boosted the Bird. Meantime New Zealand’s key dairy producer Fonterra, the largest milk producer in the world, reduced its forecast for milk prices for 2019-2020.
NZD/USD finished at 0.6147 (0.6077 yesterday). The Kiwi traded to an overnight and near two-week high at 0.61579. Immediate resistance lies at 0.6160 followed by 0.6200. Immediate support can be found at 0.6110 followed by 0.6080 and 0.6030. Less than a week ago, the Kiwi traded to 0.5920. Its difficult to get carried away up here, someone will shoot the Bird back down to earth. Likely range today 0.6060-0.6160. Prefer to sell rallies.
EUR/USD – Stays Positive Near 1.1000, Spotlight on Euro Area PMI’s
The Euro continued its climb, trading to an overnight peak at 1.099 with many looking for a topside break of its seven-week range. The shared currency has been boosted by the Franco-German agreement on a proposal between President Macron and Chancellor Merkel for a EUR 500 billion Recovery Fund to offer grants to the sectors hardest hit by the coronavirus. Many see this as a step to bring Europe closer to a fiscal union. The release of the FOMC meeting minutes provided more support for the Euro as US policymakers pledged to keep interest rates near zero for some time.
Today sees the release of Euro area Manufacturing and Services PMI, most of which are expected to see improvements. The risk is for a disappointment and could see a Euro pullback. EUR/USD closed at 1.0978 in New York (1.0935 yesterday). Overnight low for the shared currency was 1.09188. Immediate resistance can be found at 1.1000 followed by 1.1030. Immediate support lies at 1.0950 and 1.0920. Look for a likely trading range today of 1.09-1.10, prefer to sell rallies