Aussie up after election, dollar weakens significantly

Overall market sentiment is mixed in today’s Asian session, with the Nikkei rallying but selling off in Hong Kong and China. Aussie extends the short-term rebound, following Labor’s victory in the federal election over the weekend. Kiwi is also firmer ahead of the RBNZ rate hike. On the other hand, the dollar and Canadian are the softest. The European majors and the yen are mixed for now.

Technically, as gold’s rally also expands, focus shifts to minor resistance at 1858.57. A firm break will confirm the short term low at 1786.65. A stronger rebound would be tantamount to channeling resistance towards 19333. Such a development could be accompanied by a deeper pullback in the dollar, especially against commodity-linked currencies.

In Asia, at the time of writing, the Nikkei is up 0.56%. Hong Kong’s HSI index is down -1.95%. China Shanghai SSE is down -0.51%. The Singapore Strait Times is down -0.47%. The Japanese 10-year JGB yield is down -0.0049 to 0.235.

BCE Lagarde: rate hike could come a few weeks after the end of net asset purchases

ECB President Christine Lagarde said on Dutch television this weekend: “We will follow the path of stopping the net purchase of assets. Then, some time after that – which could take a few weeks – raise interest rates. This is seen as an indication that a rate hike could take place in July, after asset purchases halted in June.

Board of Governors member Klass Knot earlier floated the idea of ​​a 50 basis point hike. But Lagarde said, “that’s not something I can tell you at this point.” She stressed, “We have to make sure it happens gradually enough that it doesn’t slow down this rolling car. We have to lift the accelerator for sure to slow inflation, but we can’t break gears.

RBA Kent: Progressive QT also plays a role in stimulus suppression

RBA Deputy Governor Christopher Kent said in a speech that while most observers were focused on the central bank’s 25 basis point rate hike this month, it also moved to “quantitative tightening.”

“As the Bank now takes steps to remove the considerable monetary stimulus, cash rate increases are the proven measure that will do most of the work…,” he said. “The gradual process of QT will also play a role in this task, but predictable and modest.”

“As the Bank’s bond portfolio will mature gradually, the Bank’s balance sheet and commercial banks’ ES balances will remain large for a few years. This means that the cash rate will continue to trade slightly below the cash rate target, but above the rate paid on ES balances. Importantly, the Bank will continue to be able to maintain effective control over the cash rate as it withdraws monetary policy stimulus in the period ahead.

RBNZ rate hike and FOMC minutes

The RBNZ is expected to continue its tightening cycle this week and raise the OCR another 50 basis points to 2.00%. There is no change in the view that the OCR could peak at around 3.4%, as the RBNZ had predicted. But it would now take less time than expected to reach the top of the cycle. The RBNZ should reinforce this message to the markets.

Based on recent comments, the Fed official has shown a consensus plan for a 50 basis point hike per meeting, at least for the next ones. The FOMC minutes should reflect the discussions and affirm this message as well. Meanwhile, the sequel, say July or August, as well as the end point of the year would remain data dependent.

On the data front, PMIs will be the main focus this week. Also, Germany Ifo and Gfk sentiment; durable goods orders, US personal income and spending; Retail sales in New Zealand and Australia, retail sales in Canada will also be monitored.

Here are some highlights of the week:

  • Monday: Germany Ifo business climate.
  • Tuesday: Retail sales in New Zealand; PMI Australia; Japan manufacturing PMI; UK public sector net borrowing, PMI; Eurozone PMI; US PMIs, new home sales.
  • Wednesday: RBNZ Rate Decision; Final German GDP, Gfk consumer sentiment; Economic expectations of Credit Suisse in Switzerland; US durable goods orders, FOMC minutes.
  • Thursday: Japanese business services prices; private capital expenditure in Australia; retail sales in Canada; US GDP revision, unemployment insurance claims, pending home sales.
  • Friday: IPC Japan Tokyo; retail sales in Australia; Money supply M3 of the euro zone; United States Goods Trade Balance, Personal Income and Expenditure, and PCE Inflation.

AUD/USD daily report

Daily pivots: (S1) 0.7004; (P) 0.7039; (R1) 0.7075; After…

The intraday bias on AUD/USD remains to the upside at this point. The rebound from the short-term low of 0.6828 is on track towards the 55-day EMA (now at 0.7183). The breakout there will then target the resistance at 0.7265. On the downside, however, the breakout of 0.6948 will resume a deeper drop from 0.8006 to 0.6828, and then target the medium-term Fibonacci level of 0.6756/60.

Overall, price action from 0.8006 is seen as a corrective pattern to rise from 0.5506 (2020 low). A deeper drop could be seen down to a 50% retracement from 0.5506 to 0.8006 to 0.6756. This coincides with a 100% projection from 0.8006 to 0.7105 from 0.7660 to 0.6760. Strong support is expected from the 0.6756/60 cluster to contain the decline to complete the correction. However, a sustained breakout of 0.6756/60 would indicate that AUD/USD is indeed already in a medium-term downtrend.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
23:01 GBP Rightmove M/M House Price Index May 2.10% 1.60%
08:00 USD Germany IFO Business Climate May 91.4 91.8
08:00 USD Current evaluation of the IFO in Germany May 97.2 97.2
08:00 USD The expectations of the IFO in Germany can 85.8 86.7

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