Aussie slips to 0.66
Mostly one-way trade saw AUD/USD give back more than US1 cent last week, the currency slipping from 4-month highs just above 0.6700 to a low of 0.6592 by week’s end. AUD/USD has since steadied around 0.6630 ahead of a heavier local data calendar and crucial US April PCE inflation data.
Aussie slips to 0.66
Mostly one-way trade saw AUD/USD give back more than US1 cent last week, the currency slipping from 4-month highs just above 0.6700 to a low of 0.6592 by week’s end. AUD/USD has since steadied around 0.6630 ahead of a heavier local data calendar and crucial US April PCE inflation data.
With very little in the way of Aussie data last week the currency was tossed about by global developments.
Base and precious metals have been on a tear lately, but succumbed to profit taking last week. Gold slipped 5% to $2332/oz, while copper, which earlier ran up to an all-time high of $11,105/t amid fears of a global shortage fell more than 7% last week.
Gold and copper are both still sitting on solid gains for the year, up more than 13% and 20% respectively, but last week’s reversals were even enough to tip the risks for AUD/USD.
The S&P’s US PMI surveys doesn’t usually move markets much but their composite manufacturing and service sector index rose to a two year high last week. The minutes for the US FOMC’s May meeting also had a hawkish flavour, with officials even open to raising rates if inflation re-accelerated.
Combined, the S&P US PMI and the Fed minutes triggered a decent paring back in 2024 Fed rate bets, giving the USD a broad based lift and accounting for most of AUD/USD’s setback last week. In mid-May US rates markets were pricing -50bp in Fed rate cuts this year, but that has been wound back to -24bp in rate cuts.
A cooler read to Beijing’s latest policy initiatives aimed at their beleaguered housing sector was also a background story for AUD/USD last week. Policymakers announced CNY300bn (USD42bn) in PBOC funding to help local government entities purchase unsold housing inventory from developers.
The move was initially greeted with enthusiasm, but since then a more measured take has taken hold - similar pilot programs have been underway in several cities over the last year, but have only had limited success. The purchasing power of the plan would only make a small dent in China’s unsold inventory of homes too. The Shanghai property sector equity sub-index had risen almost 30% from its lows in mid-April, but slipped 7% last week.
The Aussie will have a slew of local data to pick apart this week with April retail sales due Tuesday and the April monthly CPI indicator due Wednesday. The building blocks for Q1 GDP including construction work done and CAPEX figures will shed light on the economy’s Q1 performance.
China’s official May PMI business surveys lead calendars in Asia. They are expected to show encouraging signs of an economy extending its rebound momentum, though overall it’s a unbalanced recovery, with consumers and the housing sector still very soft.
Friday’s April US PCE inflation, the Fed’s preferred inflation gauge, could deliver the first encouraging signal in a while that disinflation hasn’t completely stalled out, with the core rate expected to print a benign 0.2% m/m, its slowest monthly gain since November.
The Fed has been in a tricky situation. They have been planning to cut rates this year, but inflation and labour market data have argued otherwise, so officials have pivoted to a patient stance and want to see several more months of favourable inflation data before lowering rates. Eurozone May preliminary inflation data will be poured over too, ahead of a widely expected ECB rate cut in June.
Event risk
Tuesday
Aus Apr retail sales
Wednesday
Aus Q1 construction work done
Aus Apr monthly CPI indicator
Thursday
Aus Q4 CAPEX
Aus Apr building approvals
RBA Assistant Governor (Economic) Sarah Hunter fireside chat
Eurozone May prelim CPI
Friday
Aus Apr private sector credit
China May NBS manufacturing and services PMIs
US Apr personal consumption deflator
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