RBA minutes, Chinese equities higher

Market Brief

In the minutes from its May meeting, the Reserve Bank of Australia (RBA) retained an easing bias, leaving open the possibility of further rate cut. During its May 5 meeting, the RBA cut interest rate by 25bps to a record low of 2%. First, the Aussie fell to 0.7957 against the dollar before returning above 0.80 in late Asian session. AUD/USD is moving closer to the bottom of its declining channel will find buying interest once the 0.7960-0.80 area has been cleared. On the upside, closest resistance stands at 0.8164 (high from May 14) while on the downside a strong support stands around 0.79.

In New Zealand, the Kiwi jumped more than 1% against the greenback after 2Y inflation expectations rose from 1.80% in Q1 to 1.85% in Q2. NZD/USD tried to break its 50dma to the upside but was unable to turn it into a support. The Kiwi is now trading near the bottom of its 4-month range between 0.7740-0.7177.

Asian equity markets are broadly higher this morning, driven by strong performances of Chinese stocks. Shanghai composite printed a new all-time high at 2,131.7, up 2.32%. The Nikkei 225 is about to close in positive territory for the third day in a row, up 0.68% while the Hang Seng edges higher by 0.14%. In Australia, S&P/ASX is down -0.77%. USD/JPY broke the 119.74 resistance implied by the 38.2% Fibonacci on March sell-off. The 120.18-61 area needs to be cleared for fresh upside attempt. A strong support stands around 118.50 (previous lows). Japan’s Q1 GDP figures are due overnight and may provide some volatility. Preliminary estimates indicate that the Japanese economy is expected to have grown 1.6%q/q (annualised) during the first-quarter (1.5% prior).

The EUR/USD sell-off initiated yesterday continued in Tokyo overnight. The single currency retreated more than -1.50% since its high from last Friday. A couple of economic data from the US are due today: April’s Housing Starts are expected at 1015k (926k prior) while Building Permits are expected to rise to 1064k from 1039k in March. We expected the numbers to be in line with expectations. A significant surprise on the upside may awake dollar bulls and accelerate the rise of the greenback. However, it is more likely that Fed’s minutes release tomorrow and inflation figures due on Friday will move the market. German ZEW expectations (49 exp, 53.3 prior) and Eurozone’s final inflation (0%y/y exp, 0% prior).

In UK, CPI figures are due this morning and are expected to come in flat in April. GBP/USD retreated to 1.5660, affected by the strength of the dollar. The cable will find support at 1.55 (psychological level and previous highs) and resistance at 1.58. EUR/GBP was on sell in Asia and will find some support at 0.7120 (previous low).