Market Briefing: Cross-currents & consolidation

• Holding on. Consolidation across most markets after the recent turbulence. USD treads water. AUD hovering near ~$0.69, ~5% from its May peak.

• Data flow. AU jobs rebound in May, but that only unwound the April falls. More doubts RBA will hike again. US data firm. US Fed rate hikes underpriced?

Global Trends

• Following the recent bouts of turbulence, there was a relative sense of calm and modest moves across markets overnight. US equities were choppy with the tech-focused NASDAQ slipping back again (-0.5%) in part due to heavyweight stock Apple shedding ~6% after announcing its product price rises. Elsewhere, oil prices ticked up (brent crude +2% to ~US$75.25/brl) on the back of reports the Iranian Navy is trying to assert its authority in the Strait of Hormuz. Bond yields and currencies consolidated with the US 10yr yield oscillating around ~4.39% (the middle of its ~3-month range) and the USD index treading water near the upper end of its 1-year range. The EUR (the major USD alternative) is still down at levels last traded in May 2025 (now ~$1.1370) and USD/JPY is around multi-year highs (now ~161.77). The NZD has tentatively levelled off, albeit near year-to-date lows (now ~$0.5649), and the AUD nudged up a fraction after its torrid run (now ~$0.6909).

• Data wise, the US PCE deflator (the US Fed’s preferred inflation gauge) was released. The data was broadly inline with consensus predictions with headline inflation quickening to 4.1%pa and core inflation accelerating to 3.4%pa (its fastest pace since 2023). At the same time, there was also a pickup in consumer spending with the higher than usual tax refunds recirculating back into household’s pockets helping to support activity. Elsewhere, driven by the tech sector, US business investment remains solid with durable goods orders (excluding aircraft) rising again in May. All up, the US inflation pulse and improvement in activity suggest the US Fed may have work to do to cool things down. Markets are pricing in a Fed rate hike by October, although beyond that traders are less convinced more will happen with only ~39bps of tightening discounted by Q1 2027.

• The global data calendar is limited over the rest of the week. Barring an exogenous shock (which is always possible given the state of the world) we expect markets to be rather range bound. Next week, however, things could heat up once again. The central banker panel at the annual ECB conference will be in focus (Weds night AEST), as will the US ISM survey (Weds night AEST), and monthly US jobs report (Thurs night AEST). On balance, we remain of the view that markets could move to factor in even more tightening by the US Fed which in turn may see the USD strengthen further over the period ahead.

Global event radar: China PMI (30th June), EZ CPI (1st July), Central Banker Panel (1st July), US ISM (2nd July), US Jobs (2nd July)

Trans-Tasman Zone

• After a challenging and tricky time over recent weeks, the NZD and AUD consolidated over the past 24hrs, inline with the more muted moves in other asset markets (see above). That said, at ~$0.5649 the NZD remains near the bottom of the range it has occupied since late-November. The AUD (now ~$0.6909) is close to the lower end of its multi-month range and ~5% from its early-May cyclical peak.

• The Australian employment report was released yesterday, and its volatility was on display once again with the drop in employment in April (somewhat due to the earlier Easter and school holidays) unwinding. Employment rose 40,300 in May, though it was mainly part-time jobs (+35,200). Also taking some of the gloss off the topline result were hefty downward revisions to the previous month. After accounting for these adjustments there was no net job creation over April/May. The unemployment rate dipped slightly to 4.4%. Better but still above where the RBA had penciled it to be in Q2, and forward indicators such as capacity utilization point to a further increase in unemployment over coming months.

• Notably, Australian jobs growth is running at ~1%pa, around half of its long run average. The negative impact of higher interest rates on activity should, in our view, see labour market conditions soften. In our opinion, there are lingering inflation pressures that may support another RBA rate rise, but there are probably more reasons starting to come through suggesting another increase might not be delivered. Markets are in a similar frame of mind with only a ~50% chance of another RBA rate hike by November now discounted. That said, a key point is that the RBA looks to be closer to the end than the beginning of its tightening phase. Other central banks have only just started to get off the mark, and markets are pricing in a greater chance the US Fed might soon tighten. Hence, relative yield spreads are shifting against the AUD. Given this, the shaky risk backdrop, and a firmer USD, we believe the AUD continues to face downside risks over the near-term.

AUD & NZD event radar: China PMI (30th June), EZ CPI (1st July), Central Banker Panel (1st July), US ISM (2nd July), US Jobs (2nd July)

AUD levels to watch (support / resistance): .6800, 0.6850 / 0.6950, 0.7000

NZD levels to watch (support / resistance): 0.5580, 0.5620 / 0.5680, 0.5720

Market Moves

Peter Dragicevich

Currency Strategist - APAC

peter.dragicevich@corpay.com

Upcoming Events

FRIDAY (26th June)

JPY Tokyo CPI Inflation (June) (9:30am)

USD Trade Balance (May) (10:30pm)

EUR ECB’s Schnabel Speaks (11:45pm)

SATURDAY (27th June)

USD Fed’s Kashkari Speaks (1:30am)

EUR ECB’s Vujcic Speaks (2am)

*Note, all times/dates provided are AEST