Commodity currencies lead by the AUD have staged a solid rebound over past sessions, despite weakness across European equity indices and the EUR surrendering ground against the USD.
Market appetite for AUDJPY and NZDJPY helped underpin the support for both currencies with onshore commercial accounts also better demand for export hedging. Yesterday’s RBA minutes highlighted concerns about the European financial markets as well as expectations for a moderation in inflation.
However, overall the RBA remains positive in their outlook on Australia’s terms of trade and a more sustainable pace of growth in China and broader Asia. While the RBA might pause in August and keep rates on hold markets continue to favour further hikes in later months.
This sentiment coloured our afternoon session and indeed the overnight session, the NZD in tow and touching the US0.7150 level as the NY session comes to an end. The favour for the AUD has taken the NZDAUD cross back to the 0.8100 level. For local input we can consider June’s tourist arrival numbers, due at 1045am, we expect them to be up around 6% y/y, on much recovered Asian inflows.
However, we are not so confident about the month’s net immigration, expecting another soft result, with a risk of a first negative for a long while. This afternoon’s credit card billings will only mean something if they are big, or negative, following the severe down and up pattern over April (-1.6%) and May(+1.9%). These are due at 3:00pm.
Majors
We’ve commented over the last few weeks that price action in EUR/USD has been driven more by short-covering than any real enthusiasm on the part of investors to actually buy the euro. Having briefly risen above USD1.30 last Friday for the first time since May 10th, the Single European Currency’s move back above this level at the European opening smelled of outright capitulation by the last remaining euro bears.
The weekly IMM data had shown a gradual scaling back of the euro short position from a low point of -113.9k contracts to just -27.1k in the latest reporting week and it seems that USD1.30 proved a big figure too far. After all, anyone with an uncovered short position initiated at any point over the last 10 weeks has now lost money; an uncomfortable start indeed to Q3. The fresh cycle high of USD1.3029 came on the back of successful bond auctions in three of the porcine countries (Greece, Ireland and Spain) but talk of selling from Swiss-based accounts the saw the euro gap lower, moving in very choppy fashion back down through USD1.29.
The daily high-low charts showed USD1.2781 as a very important level through which an ‘outside day’ defined as a higher high and lower low would be formed. This is often a key technical reversal indicator and though the euro recovered from its 1.2839 low by the close of business, the technical situation in this pair is now much more fragile. With EUR/USD under pressure, so too came a turnaround in EUR/GBP. Having reached 0.8531 on Monday, this level held the re-test on Tuesday and has now formed a near-term double-top.
The latest CBI Survey had something for everyone; total order books reached their best levels this year but exports and business optimism both fell back from recent best levels. With the upside momentum fading above 0.85, stop-loss selling triggered on a break through 0.8485 pressured the cross down to 0.8450 by the close.
There is key data on retail sales and GDP by the end of this week, whilst the publication of the minutes of the latest BoE MPC will be the highlight of Wednesday’s calendar. With stock markets having largely regained their earlier losses on some modest US corporate earnings disappointments, USD/JPY pulled further away from last week’s 86.27 low. Indeed, the Yen proved to be the worst performer globally amongst the major currencies; something which must surely come as a relief to Prime Minister Kan who has spoken about the benefits of a weaker JPY exchange rate.
BoJ minutes due this morning will be closely watched for any hint about FX policy. For all the corporate and economic news due, however, the big event for markets will be Fed Chairman Ben Bernanke’s semi annual testimony on monetary policy. This has now been shifted to 2pm EST Wednesday so will cast a huge shadow over the upcoming European trading session.
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