Market Briefing: Risk wobbles weigh on the AUD

• Inflation worries. Higher oil prices & central bank rethink push up bond yields. Equities dipped on Friday. USD firmer. AUD & NZD fall back.

• Macro pulse. Concerns about the global economy & inflation remain. China data due today. Monthly Australian jobs report released later this week.

Global Trends

• A few wobbles across cyclical assets at the end of last week with European and US equities losing ground, industrial metals prices falling, and the USD strengthening on Friday. The US S&P500 shed ~1.2%, its largest one-day slide since late-March. Copper (-4.5%) and iron ore (-1.3%) also went backwards. By contrast, oil prices continue to edge up with brent crude trading close to US$111/brl. The US and Iran remain deadlocked over a deal to end the conflict and reopen the Strait of Hormuz. Traders were also underwhelmed by the limited progress on the matter following a meeting by US President Trump and China’s President Xi. The lack of concrete measures is deepening worries the true (negative) impact on the global economy and supply chains from the prolonged conflict/disruptions are coming into view because inventories (which have acted like a cushion) are being depleted.

• The inflation effects from the sustained jump in oil/energy prices are also causing traders and analysts to re-evaluate the outlook for interest rates. A rate hike by the US Fed is now partially priced in by year-end with a move fully discounted by next March. On top of another interest rate increase anticipated by the RBA by September markets are also expecting rate hikes by the Bank of Canada, European Central Bank, Bank of England, RBNZ, and Bank of Japan by year-end. This, coupled with country specific issues like the latest political crisis engulfing the UK where PM Starmer’s leadership is under threat, is pushing up bond yields. This in turn has weighed on broader risk sentiment. The US 10yr yield rose ~11bps on Friday (now ~4.59%, a high since February 2025), the German 10yr climbed ~12bps, and the UK 10yr reached 5.17% (levels last traded in mid-2008). The relative unease across markets and upswing in US interest rates has supported the USD. EUR slipped back (now ~$1.1623), GBP remains under downward pressure (now ~$1.3322), and USD/JPY ticked up (now ~158.78). NZD tumbled below its 1-year average (-1.2% to ~$0.5839) and the AUD dipped (-1% to ~US$0.7149).

• In China the April activity data batch is out today (12pm AEST), while in the US the event calendar is light this week with the FOMC meeting minutes (Thurs morning AEST) and speeches by a couple of US Fed members the focal points. Markets will also continue to watch for any fresh Middle East news. As discussed before, the longer the current state of play remains the greater the negative impacts on the global economy. This seems to be starting to sink in across markets. On net, we believe the shaky risk sentiment and upward repricing in US interest rate expectations should be near-term USD supportive factors.

Global event radar: China Data (Today), UK CPI (Weds), Global PMIs (Thurs), JP CPI (Fri), RBNZ (27th May), US PCE (28th May), Germany CPI (29th May)

Trans-Tasman Zone

• The modest bout of risk aversion generated by the upswing in bond yields due to inflation worries, and firmer USD, has exerted downward pressure on the NZD and AUD. At ~$0.5839 the NZD is back below its 1-year average and the AUD (now ~$0.7149) is near the bottom end of its 1-month range. After its recent strong run the AUD also underperformed on the major cross-rates with falls of ~0.4-0.8% recorded against EUR, JPY, GBP, CAD, and CNH.

• This week in Australia the monthly labour force report is due (Thursday). In NZ, Q1 retail sales are released (Friday). In terms of the Australian jobs data we think there is a chance the figures undershoot consensus predictions due to some potential data distortions. The survey reference week coincided with school holidays and an earlier Easter this year. Typically, these types of measurement issues have tended to see employment weaken over the month. Consensus is looking for employment to rise ~15,000 in April and for the unemployment rate to hold steady at 4.3%. A weaker report could, in our view, see markets temper some of their bullish RBA rate hike bets. Another RBA rate rise is fully priced in by the September meeting with ~46bps of tightening factored in by next February.

• As discussed before, we think it might be difficult for the RBA to be more 'hawkish' than what is discounted. Furthermore, we don’t believe the looming slowdown in Australian economic activity because of higher interest rates and fuel costs has been accounted for, neither have the challenges set to be faced by the global/Asian economy from the Middle East conflict. ~80-90% of the energy shipped via the Strait of Hormuz is sent to Asia and other materials important to produce semi-conductors are also impacted. Given the ‘net long’ skew in positioning (as measured by CFTC futures) and overvaluation (the AUD is north of where yield spreads suggest it should be and ~2% above our ‘fair value’ estimate) we feel the reversal in the AUD might extend a bit further over the period ahead.

AUD & NZD event radar: China Data (Today), UK CPI (Weds), AU Jobs (Thurs), Global PMIs (Thurs), JP CPI (Fri), RBNZ (27th May), AU CPI (27th May), US PCE (28th May), Germany CPI (29th May)

AUD levels to watch (support / resistance): 0.7090, 0.7120 / 0.7180, 0.7260

NZD levels to watch (support / resistance): 0.5790, 0.5830 / 0.5890, 0.5920

Market Moves

Peter Dragicevich

Currency Strategist - APAC

peter.dragicevich@corpay.com

Upcoming Events

MONDAY (18th May)

CNY Retail Sales (Apr) (12pm)

CNY Industrial Production (Apr) (12pm)

CNY Fixed Asset Investment (Apr) (12pm)

GBP BoE’s Greene Speaks (5:35pm)

GBP BoE’s Mann Speaks (6:30pm)

TUESDAY (19th May)

USD NAHB Housing Index (May) (12am)

NZD Card Spending (Apr) (8:45am)

AUD RBA’s Hunter Speaks (9:30am)

JPY GDP (Q1 P) (9:50am)

AUD Consumer Confidence (May) (10:30am)

AUD RBA Meeting Minutes (11:30am)

GBP Jobs Report (Mar/Apr) (4pm)

GBP BoE’s Breeden Speaks (6:10pm)

EUR ECB’s Lane Speaks (10pm)

USD Fed’s Waller Speaks (10pm)

CAD CPI Inflation (Apr) (10:30pm)

EUR ECB’s Makhlouf Speaks (11:55pm)

WEDNESDAY (20th May)

USD Fed’s Paulson Speaks (9am)

GBP CPI Inflation (Apr) (4pm)

USD Fed’s Barr Speaks (11:15pm)

THURSDAY (21st May)

USD FOMC Minutes (4am)

AUD PMIs (May P) (9am)

JPY PMIs (May P) (10:30am)

AUD Jobs Report (Apr) (11:30am)

EUR France PMIs (May P) (5:15pm)

EUR Germany PMIs (May P) (5:30pm)

EUR PMIs (May P) (6pm)

GBP PMIs (May P) (6:30pm)

EUR ECB’s Villeroy Speaks (7pm)

GBP BoE’s Taylor Speaks (10pm)

USD Initial Jobless Claims (10:30pm)

USD Philly Fed Outlook (May) (10:30pm)

USD PMIs (May P) (11:45pm)

FRIDAY (22nd May)

USD Fed's Barkin Speaks (2:20am)

NZD Retail Sales (Q1) (8:45am)

JPY CPI Inflation (Apr) (9:30am)

GBP Retail Sales (Apr) (4pm)

EUR ECB’s Lane Speaks (4:15pm)

EUR Germany IFO (May) (6pm)

EUR ECB Pres. Lagarde Speaks (6:30pm)

EUR ECB Wages Indicator (Q1) (7pm)

EUR ECB’s Vujcic, Kazimir, Muller Speak (9:30pm)

CAD Retail Sales (Mar) (10:30pm)

SATURDAY (23rd May)

USD Fed’s Waller Speaks (12am)

*Note, all times/dates provided are AEST