> NZ March Building Consents : 17.9% v. -19.3% revised prev.
> NZ May Prelim ANZ Business Confidence : 7.0 v. -8.4 prev.
> UK April Final Services PMI : 61.0 v. 60.2 exp.
> UK Bank of England Monetary Policy Decision : 0.10% v. 0.10% exp.
> US Unemployment Claims : 498K v. 540K exp.
Overnight Headlines (BBG)
> China/AU tensions reached a fresh high as China made moves to put further pressure on the relationship by backing away from the economic partnership agreement
> Commodity prices continue to move higher, as much of the developed world starts to reopen as vaccinations rise
What you need to know
Interesting session yesterday in Asia, with the economic docket sparse it was a surprise move from China that sparked a sharp selloff in the AUDUSD as weak long positions were shaken out. The news that China has planned to pause the CN/AU economic dialogue is another step in the deterioration of the relationship with Australia’s largest trading partner. Although the agreement, which was designed to have open dialogue between the countries, had not been adhered to since 2017 the move was a powerplay from China to flex their muscles and escalate tensions further. Market reaction was a move away from AU assets briefly, with the local currency feeling the brunt of the move and touching a low of 0.7701 on the news. Local officials announced their disappointment later in the session, with the AUDUSD slowly retracing losses throughout the remainder of the session.
The Bank of England kept their policy unchanged overnight, however there are reasons to be optimistic on the UK economy as the reopening plan remains well on track. GBPUSD had a wide range on the session, although down marginally on the day. The major focus overnight was the continued good news from the US economy, more specifically the labour market as unemployment claims reached a pandemic low and showed a slow tightening of the labour market. Whether or not the strong data expected tonight will change the Fed’s path is yet to be seen, however it is clear that the economy is well on track. US equity markets looking strong ahead of tonight’s Non-Farm Payrolls, with the S&P500 up 0.8% on the session. Major moves of the day came in commodity markets, as metals surged on the day with huge gains seen across the board. WTI crude the laggard down 0.6%, although Iron Ore is up 5.2%, Copper near 2% and even Gold caught a bid up 1.6%. The strong commodity price action boosted commodity FX pairs, with NZD, AUD and CAD all the best performers against a sliding Dollar.
The Day Ahead
> AU RBA Monetary Policy Statement
> CN April Caixin Services PMI : 54.2 exp.
> NZ Q2 Inflation Expectations : 1.89% prev.
> EU March German Industrial Production : 2.1% exp.
> EU ECB President Lagarde to speak
> CA April Employment Change & Unemployment Rate : -160.5K & 7.8% exp.
> US April Non-Farm Employment Change & Unemployment Rate : 990K & 5.8% exp.
> US April Average Hourly Earnings : 0.0% exp.
Opening up towards the upper end of the recent range this morning, the question will be whether or not this morning’s RBA SOMP will have enough optimism in it to push the AUDUSD through key resistance. Likely to see some positioning for positive risk sentiment from this evening’s Non-Farm Payrolls, as the job gains in the US are expected at near 1mio in the month of April. Could be a chance to close the week above 0.7800, keeping a close eye on commodities as they continue to rip higher.
Range for the day : 0.7760 – 0.7815
Again, no real change to the picture although the strong performance of commodities overnight sets the stage for a potential run at resistance at 0.7816. Will need to see a clear break, and a close above 0.7800 for a shift in momentum back towards 0.7900.
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