Market Briefing: No news is good news
Have a look at the latest edition of our Event Radar & Views In A Nutshell pack.
Positive vibes. Limited news flow. S&P500 rose, as did industrial metals. AUD outperformed. AUD/USD touched levels last traded in November.
Event radar. China GDP, US CPI, US retail sales, & AU jobs report due next week. Several US Fed members also speak. More tariff letters likely.
AUD seasonals. Upbeat sentiment AUD supportive near-term. But AUD has historically had a tendency to weaken over late-July & August.
Global Trends
No news has been good news for risk sentiment and markets overnight with cyclical assets performing strongly. The market has taken the recent US trade tariff announcements in its stride with traders possibly in the mindset that the various levies might be re-negotiated before kicking in on 1 August. In terms of the numbers US equities rose with the S&P500 (+0.3%) hitting a fresh record high. Bond yields also ticked higher with the US 10yr rate (now ~4.35%) sitting just below its ~6-month average. Industrial metals like copper (+1.7%) and iron ore (+2.7%) increased, while in FX the upbeat tone helped the AUD and NZD outperform. The USD index tread water with EUR drifting back (now ~$1.1703). By contrast, the NZD (now ~$0.6037) appreciated and AUD (now ~$0.6590) touched a ~8-month high.
It is a light end to the week data wise with monthly UK GDP (4pm AEST) and Canadian jobs report (10:30pm) due. Things heat up next week with the release of the China data batch (which includes Q2 GDP) (Tues), US CPI inflation (Tues night AEST), the Australian jobs figures (Thurs), US retail sales (Thurs night AEST), and Japanese CPI (Friday). Beyond that, US Q2 GDP and FOMC are on the late-July event radar, as is Australian Q2 inflation.
More US trade tariff letters are also anticipated given the nations that have been informed so far only account for ~16% of US imports. Our discussed before, based on the Trump Administration rhetoric, we believe tariffs on US imports are here to stay in some form, especially as they are government revenue stream that help partially fund things like tax cuts. We think ‘glass half full’ markets might have become a bit complacent to the underlying growth/inflation risks posed by tariffs, and there is the potential for renewed bursts of USD supportive market volatility over the next few weeks as the early-August implementation date comes closer into view. As mentioned previously, while we have a negative USD view over the longer-run, in the near-term we believe there is the potential for the USD (which is tracking below our ‘fair value’ estimate) to recapture lost ground.
Global event radar: China GDP (15th July), US CPI (15th July), US Retail Sales (17th July)
Trans-Tasman Zone
The positive risk sentiment washing through markets, as illustrated by the gains in US equities and base metal prices, has supported growth-linked currencies like the AUD and NZD (see above). At ~$0.6037 the NZD is hovering towards the upper-end of its multi-month range while the AUD (now ~$0.6590) is around levels last traded in mid-November. The backdrop has also helped the AUD outperform on the cross-rates. AUD/EUR (now ~0.5630) has risen ~1% over the past 24hrs with other crosses such as AUD/JPY, AUD/GBP, AUD/CNH, and AUD/CAD appreciating by ~0.6-0.8%. AUD/NZD has also ticked higher (now ~1.0915) and is approaching its 1-year average.
Next week there are a few data points that may push and pull on the AUD. Locally, the monthly employment report is due (Thurs). In China, Q2 GDP is released (Tues). And in the US, CPI inflation (Tues night) and retail sales (Thurs night) are scheduled, with several US Fed members also set to speak. On top of that, we anticipate more US tariff letters outlining the levies that will kick in on 1 August to be sent.
With respect to the AUD, as flagged above, while the upbeat market vibes are supportive near-term, we believe there is the potential for renewed bursts of USD supportive volatility coming through over the next few weeks. We feel markets may have become a little too comfortable and complacent about the downside risks to growth and upside US inflation risks generated by US tariffs. A pick up in US inflation might see markets trim their US Fed rate cut expectations, which if realised could take some of the heat out of the AUD, in our opinion. Added to that, if we look further ahead, we would also note that the AUD has typically had negative seasonal tendencies in late-July and August. AUD/USD has declined in August in 21 of the past 28 years. The implementation of the US' new tariffs (due to come into effect on 1 August), improved US GDP growth (30 July), an on hold US Fed decision (30 July), positive US jobs report (1 August), a RBA rate cut combined with more ‘dovish’ guidance (12 August), signs of tariff induced US inflation (12 August), and/or no more deals struck at the end of the US-China tariff truce (12 August) could be catalysts for this pattern to repeat in 2025.
AUD & NZD event radar: China GDP (15th July), US CPI (15th July), AU Jobs (17th July), US Retail Sales (17th July)
AUD levels to watch (support / resistance): 0.6480, 0.6510 / 0.6610, 0.6650
NZD levels to watch (support / resistance): 0.5930, 0.5990 / 0.6060, 0.6090
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
FRIDAY (11th July) GBP GDP – Monthly (May) (4pm) EUR ECB's Panetta Speaks (6pm) EUR ECB's Vujcic Speaks (6:40pm) EUR ECB's Cipollone Speaks (9:30pm) CAD Jobs Report (June) (10:30pm)
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