Aussie stalls ahead of Q1 GDP and US payrolls
Last week was mostly a “rangey” one for AUD/USD, the pair stumbling into support just below 0.6600 and seeing a better tone into week’s end. Q1 GDP headlines the local data calendar this week. The US labour market will be in the spotlight Friday.
Aussie stalls ahead of Q1 GDP and US payrolls
Last week was mostly a “rangey” one for AUD/USD, the pair stumbling into support just below 0.6600 and seeing a better tone into week’s end.
Q1 US GDP was revised lower, to 1.3% annualised from 1.6%, while US April core PCE inflation rose a more moderate 0.2% monthly pace, helping lift AUD towards 0.6650 by week’s end.
After a solid run-up from 5-month lows of 0.6363 on 19 April to a high of 0.6714 on 16 May, AUD/USD has been increasingly rangebound, holding mostly to a rough 0.66-0.67 range, matching trends in other key currencies. EUR/USD has been contained to a 1.08-1.09 range, while GBP/USD has been held to 1.27-1.28.
Key Asian currencies remain on back foot though. JPY has continued to trend lower in recent weeks, approaching lows from late April when the MoF/BoJ intervened to stem excessive one-sided JPY weakness, while China’s yuan remains soft too. Both currencies suffer from unattractive low local yields.
AUD/USD mostly ignored less constructive trends across commodities last week. Copper has fallen more than 9% from all-time highs on 20 May, while iron ore returned to $110/t, after holding around $120/t the previous week.
Q1 GDP headlines the local data calendar this week. The pulse on Australia’s GDP has been a soft one for some time, and the consensus is for another anaemic update in Q1 at +0.2%, led by ongoing soft consumer spending, alongside declines in construction. GDP likely contracted for a 5th quarter in a row on a per-capita basis, owing to surging population growth.
Still, the RBA faces ongoing higher than expected inflation, despite the soft growth backdrop. Last week’s monthly CPI indicator for April rose to an annual pace of 3.6%, from 3.5%, higher than expected. While the latest figures point to a slight upside surprise for the Q2 CPI, cost of living relief measures announced in the May Federal Budget will produce a more benign profile from July.
RBA watchers will be keen to hear for the first time from the new RBA deputy governor Andrew Hauser on Friday too.
The US labour market will be in the spotlight Friday, with May non-farm payrolls on tap. The May FOMC meeting minutes and recent speeches show Fed officials openly debating whether fed funds at 5.375% is restrictive enough, after disinflation stalled in Q1 and jobs growth accelerated.
But hard and soft data on the US real economy and consumer prices since then suggest disinflation may be back on track. It is still far too early for Fed officials to shift their patient messaging, but a probable moderation in the pace of payrolls gains in May, widely hinted by the business surveys, will be welcomed by Fed officials.
The ECB and the BoC also meet this week. The ECB has practically baked an easing this week, but the path for subsequent policy is unclear. More members are calling for policy patience due to uncertainty on achieving their inflation goals and stressing a “bumpy” road ahead. With an ECB rate cut fully priced in, EUR will take its cue from guidance around future cuts.
The signals are not as conclusive for a Bank of Canada rate cut, with markets pricing in just over an 80% chance of a move.
Event risk
Monday
US May manufacturing ISM survey
Tuesday
Aus Q1 balance of payments & net exports GDP contribution
Aus Q1 inventories & company profits
Wednesday
Aus Q1 GDP
China May Caixin services PMI
Japan, Eurozone. UK and US S&P May final services PMIs
US May services ISM survey
Thursday
Aus Apr housing finance
Aus Apr goods trade balance
European Central Bank policy meeting
Bank of Canada policy meeting
Friday
Aus RBA Deputy Governor Hauser speaks
China May exports & imports
US May non-farm payrolls
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