Market Briefing: Powering ahead
Positive vibes. Upbeat sentiment on Friday. Reports bolstered expectations about US/China trade war de-escalation. Solid US jobs data also helped.
Market trends. US equities recorded 9th straight gain. AUD hovering at the top of its multi-month range. Labor wins Federal Election with larger majority.
Event Radar. In NZ Q1 jobs report due (Weds). US Fed & BoE also meet this week. BoE expected to cut rates while US Fed looks set to hold steady.
Global Trends
It was a positive end to last week in markets with equities extending their recovery, base metals and bond yields rising, and cyclical currencies outperforming. In the US, the S&P500 rose 1.5%. This was the 9th straight daily gain, its longest winning streak since 2004, and means the index has unwound its 'Liberation Day' losses. In FX, the USD index drifted lower with EUR moving back above ~$1.13 and USD/JPY slipping under ~145, while the backdrop helped the AUD (now ~$0.6444) reach a fresh multi-month high.
Helping risk sentiment were several headlines that buoyed expectations of a potential de-escalation in the US/China trade war. Following up comments from China’s Commerce Ministry that they are looking at the possibility of talks it was reported China had exempted around 1/4 of US imports from tariffs to help soften the blow on its economy. Added to that, there were stories floated that China is looking at ways to address the US’ concerns about its role in the fentanyl trade, and that the US could be looking to lower tariffs on Chinese imports. According to President Trump “at some point, I’m going to lower them because otherwise, you could never do business with them”.
Data wise, the monthly US jobs report was also generally better than anticipated, easing fears about the current health of the economy. Non-farm payrolls increased by a solid 177,000 in April with the unemployment rate remaining at 4.2%. The slow-moving data pre-dates the US ‘Liberation Day’ tariffs but nevertheless US interest rate expectations adjusted with odds of near-term reductions pared back. Markets are now factoring in ~80bps worth of US Fed rate cuts in 2025, down from ~102bps mid last week.
Markets are likely to remain sensitive to tariff-related headlines for a while yet. On top of that this week the US Federal Reserve (Thurs morning AEST) and Bank of England (Thurs night AEST) meet. While the BoE is expected to cut interest rates by another 25bps, the US Fed looks set to hold steady as it weighs a slower growth outlook against inflation worries. There are no new Fed forecasts this week; hence Chair Powell’s commentary will be watched closely given markets are assigning a ~55% chance of a rate cut in June. Pushback on market pricing by Chair Powell may give the USD a bit of short-term support. However, we remain of the view that the US’ growth challenges stemming from higher import costs and policy uncertainty should see the USD trend lower over the medium-term.
Global event radar: FOMC Meeting (Thurs), BoE Meeting (Thurs), China Trade (Fri), US CPI (13th May), US Retail Sales (15th May), JP GDP (16th May), China Activity Data (19th May), RBA Meeting (20th May), RBNZ Meeting (28th May): EZ CPI (Tonight), US Jobs Report (Tonight), FOMC Meeting (8th May), China Trade (9th May), US CPI (13th May), US Retail Sales (15th May), JP GDP (16th May)
Trans-Tasman Zone
The upbeat tone in risk markets generated by media reports that boosted expectations of a potential de-escalation in the US/China trade war and a solid US jobs report, coupled with a softer USD, helped the NZD and AUD edge higher at the end of last week (see above). At ~$0.5946 the NZD is hovering near the upper end of its 6-month range, while the AUD (now ~$0.6444) is tracking just below its 200-day moving average (a technical indicator level it hasn’t been above since early-November). Relative outperformance on the crosses also gave the AUD a helping hand. The AUD rose by ~0.3-0.7% against the JPY, NZD and CAD on Friday, and it recorded gains of 0.8% versus the EUR and ~1% against GBP. Cross rates such as AUD/EUR, AUD/JPY, AUD/GBP, and AUD/CAD are trading close to the top of their respective 1-month ranges.
Over the weekend the Australian Federal Election was held and the Labor party retained government with a larger majority. Current projections have Labor on 85 seats, with the Liberal/National’s on 39 seats, 10 Independents, and 16 seats still up for grabs. The polls ahead of the event were pointing to a Labor win, however the size of the victory was somewhat of a surprise. At the margin, the continuity and lack of a need to negotiate with the minor party’s may give the AUD a bit of knee-jerk support today. However, as we outlined previously, Australia is a small open economy, and when it comes to markets (and the AUD) it is a price taker with developments offshore more important than local politics, particularly given the lack of big picture structural reforms being pursued by either side. We don’t expect the election outcome to impact the RBA’s trajectory with further gradual/modest interest rate relief in the pipeline due to slowing inflation.
The AUD has snapped back substantially over recent weeks with it now over 9% from its US tariff shock early-April low point. In our view, the AUD could pause for breath over the near-term and give back a little ground, as may the NZD given the prospect of a lackluster Q1 NZ jobs report (Weds morning AEST). There are limited Australian economic releases this week, and as outlined above, we believe the USD might receive some support if the US Fed pushes back on the markets interest rate cut pricing (Thurs morning AEST). That said, we think outperformance against currencies such as EUR, NZD, CNH, and JPY because of diverging trends between the RBA and other central banks, combined with the resilience in the Australian economy/jobs market, can help cushion any impact on AUD/USD.
AUD & NZD event radar: NZ Jobs Report (Weds), FOMC Meeting (Thurs), BoE Meeting (Thurs), China Trade (Fri), US CPI (13th May), AU Wages (14th May), AU Jobs (15th May), US Retail Sales (15th May), JP GDP (16th May), China Activity Data (19th May), RBA Meeting (20th May), RBNZ Meeting (28th May)
AUD levels to watch (support / resistance): 0.6310, 0.6360 / 0.6490, 0.6550
NZD levels to watch (support / resistance): 0.5830, 0.5890 / 0.6010, 0.6060
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (5th May) AUD Job Ads (Apr) (11:30am)
TUESDAY (6th May) USD ISM Services (Apr) (12am) AUD Building Approvals (Mar) (11:30am) AUD Household Spending (Mar) (11:30am) EUR ECB’s Panetta Speaks (5pm)
WEDNESDAY (7th May) NZD RBNZ Financial Stability Report (7am) NZD Jobs Report (Q1) (8:45am) NZD RBNZ FSR Press Conference (11am) EUR Germany Factory Orders (Mar) (4pm)
THURSDAY (8th May) USD FOMC Decision (4am) USD Fed Chair Powell Speaks (4:30am) EUR Germany Industrial Production (Mar) (4pm) GBP Bank of England Decision (9pm) USD Initial Jobless Claims (10:30pm)
FRIDAY (9th May) CAD BoC Financial Stability Report (12am) CNY Exports/Imports (Apr) (no set time) JPY Labor Cash Earnings (Mar) (9:30am) EUR ECB’s Rehn Speaks (4pm) GBP BoE Governor Bailey Speaks (6:40pm) USD Fed’s Williams Speaks (8:15pm) USD Fed’s Barr Speaks (8:45pm) GBP BoE’s Pill Speaks (9:15pm) CAD Jobs Report (Apr) (10:30pm) USD Fed’s Kugler Speaks (10:30pm) EUR ECB’s Simkus Speaks (11:10pm)
SATURDAY (10th May) USD Fed’s Goolsbee Speaks (12am) USD Fed’s Williams & Waller Speak (1:30am) EUR ECB’s Schnabel Speaks (9:45am) USD Fed’s Musalem, Cook & Hammack Speak (9:45am) CNY CPI/PPI Inflation (Apr) (11:30am)
*Note, all times/dates provided are AEST
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