Cautious optimism emerged the key theme across the fx board in Tuesday’s Asian trading, in the wake of looming trade risks and relief-recovery in the Treasury yields and US equity futures. However, the Asian equities traded on the defensive amid softer Australian macro news that added to the growing concerns over a global economic slowdown.
Amongst the Asia-pac currencies, the Aussie witnessed good two-way price-movements, having fallen as low as 0.6962 on poor Australian retail sales and current account data before reversing sharply to refresh 3-week tops at 0.6994 on the Reserve Bank of Australia’s (RBA) rate cut announcement, which was already priced in by the markets over the past month. The RBA cut its Official Cash Rate (OCR) by 0.25bps to a record low of 1.25%. As the dust settled over the RBA event, the AUD/USD pair headed back to the familiar range near 0.6970/75 region. Meanwhile, the Kiwi kept losses below the 0.66 handle amid heavy losses seen in the local equity markets. The USD/JPY pair also traded weaker near 108.00, having bounced-off almost 5-month lows of 107.86. The safe-haven demand for the Yen remained buoyed amid escalating trade wars, as the US Republican lawmakers are set to block the US President Trump’s new tariffs on Mexico.
On the other hand, both the European currency pairs, EUR/USD and Cable traded better bid heading towards the key economic releases due later in the European session.
Amongst the commodities, both crude benchmarks stalled their declines ahead of the API crude stockpiles data while gold futures on Comex retreated from 10-week tops and traded below 1330 levels.
Main Topics in Asia
US two-year Treasury yield hits 18-month low
US should heed China’s student warning – China’s Global Times
Australian government, spy chiefs secretly urge UK to ban Huawei – Australia’s The Age
USTR And US Treasury Department Released response to China's “White Paper”
U.S. / Mexican trade/migration talk updates
UK shoppers curb spending in May - BRC
Theresa May to take tough line with Donald Trump over China - The UK Times
WTI halts further declines around $53.00 while waiting fresh clues from API data, politics
Gold near 10-week high amid political challenges, doubts over Fed’s rate hike
Japan's Motegi: Japan-US to hold working level trade talks on June 10-11 - Reuters
Australia’s retail sales drop 0.1% in April, a big miss
MXN jumps as US Republican lawmakers discuss vote to block Trump’s new tariffs on Mexico – WaPo
Reserve Bank of Australia cuts rates to 1.25%
RBA: The decision to cut is to support jobs growth
Key Focus Ahead
Today’s EUR macro calendar offers plenty of event risks, including the key Eurozone flash CPI estimate for May that will drop in at 0900 GMT alongside the bloc’s April jobless rate. Ahead of the Eurozone data, the UK Markit construction PMI will be reported at 0830 GMT, which is likely to have steadied at 50.5 in May. The speech by the RBA Governor Phillip Lowe will also hog the limelight following the June monetary policy decision.
The NA session, however, remains a thin showing, with the US ISM NY-Business Conditions Index for May due at 1345 GMT while New Zealand’s fortnightly dairy auction results will be reported around 1400 GMT. At the same time, the US factory orders will drop in and is expected to show a sharp drop in the month of April. Downbeat US data will add further to the recent USD weakness and bolster the Fed rate cut bets, as the focus also remains on the key speech by Fed Chair Powell due later today. The API crude stockpiles data due at 2130 GMT will be also eyed for fresh oil trades.
EUR/USD: Technical breakout confirmed ahead of Eurozone CPI release
EUR/USD technicals are leaning bullish amid sliding treasury yields. However, a break above the 50-day moving average (MA) resistance of 1.1277 may remain elusive if the Eurozone inflation data, due later today, prints below estimates.
GBP/USD: Buyers await UK PMI, political news to extend latest up-move
While expectations of a Fed rate cut and diminishing yields mostly drag the US Dollar (USD) down, the GBP/USD pair awaits fresh clues to stretch recent advances as it clings to 1.2665 ahead of the London open on Tuesday.
Gold: Is it Different this Time?
Is the ascent in gold another example of its many unsustainable rallies? Or will the current rally last for some time? The recurring failures of various USD pairs to retest and break recent highs have served as a vital fillip for gold's recurring support near 1266.
Euro-zone inflation preview: Core CPI is the key ahead of the ECB – Three scenarios for EUR/USD
Euro-zone inflation has probably cooled down in May. The data sets the stage for the critical ECB decision two days later. EUR/USD has room to fall with inflation and core CPI is the key.
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