Reserve Bank of Australia (RBA) board member Ian Harper, while talking to the Wall Street Journal (WSJ) said the weakness in the jobs growth and anemic wage growth is a concern for the central bank.
However, Harper stressed that the weak job market might be turning.
He added that high indebtedness is weighing on consumption and thus on the economy.
The Bank of Japan (BOJ) concluded its 2-day policy review meeting, leaving left the monetary policy settings unadjusted, holding rates at -10bps, while maintaining 10yr JGB yield target at 0.00%.
The central bank, however, upgraded the Japanese economic outlook in its quarterly outlook report.
The Elabe Poll from BFM TV shows one out of two people surveyed considered that Le Pen’s campaign has got off to a start well, compared with 43% for Macron.
However, polls continue to indicate that Macron will win the run-off against Le Pen by a comfortable majority.
The Canadian currency witnessed a sharp 80-pips rally against its American counterpart last minutes, slamming USD/CAD from fresh 14-month tops reached earlier at 1.3648.
The spot ran through fresh sellers, after the latest statement from the White House notified markets that the US President has agreed not to terminate the NAFTA at the current time, which rescued the CAD bulls big time.
Meanwhile, the Loonie pays little heed to lower oil prices, as the latest news come as a big positive for the Canadian economy. Moreover, broad based US dollar weakness also adds to the renewed downside in the major.
Markets will continue to digest the White House statement, as attention shifts towards the US dataflow due later in the NA session.
USD/CAD Technical levels
Technical resistances for the pair are aligned at 1.3593/1.3600 (5-DMA/ psychological levels), 1.3648 (14-month tops) and finally 1.3676 (classic R2/ Fib R3). On the flip side, the spot finds next support at 1.3500 (zero figure), a break below that level could open the door to 1.3487 (10-DMA) and 1.3420 (20-DMA).
GBP/USD pair clocked a 9-day high of 1.2875 in Asia as the Trump’s tax plan failed to impress the USD bulls.
Range breakout on cards?
GBP/USD has been largely restricted to a narrow range of 1.2860-1.2770 for a week now as investors try to gauge the impact of a May’s victory in the June elections on Brexit negotiations.
The polls released on Wednesday showed conservatives maintaining a healthy lead with 49% support. The market is already seeing a May win as a sure thing and is implying it will improve her negotiating position. Hence, the currency remains well bid, although it must be noted that the spike seen on April 19 was largely due to unwinding of the GBP shorts.
The British Pound is still one of the most hated currencies. An upside break from the recent trading range appears more likely than note given the American dollar is on the back foot following the Trump tax plan disappointment.
If the ECB talks about QE taper the EUR/USD would spike, leading to another wave of broad based USD selling and GBP/USD rally.
GBP/USD Technical Points
The daily RSI is yet to enter the overbought territory. The hourly RSI and 4-hour RSI is once again turning higher. Thus, the pair could have another look at 1.29 levels, in which case the daily and Intraday RSI would hit the overbought region.
On the higher side, a daily close above 1.2903 (Apr 19 high) would open doors for a test of supply around 1.30 (psychological figure) and 1.3059 (Aug 30 low). On the lower side, breach of the session low of 1.2837 could yield a pull back to 1.2755. A daily close below the same would signal a short-term top is in place and could yield a sell-off to 1.2706 (Feb 2 high) and 1.2615 (Mar 27 high).
Latest statement coming out from the White House, cites that the US President Trump agreed not to withdraw from the North American Free Trade Agreement (NAFTA) this time, during his call with the Mexican President Nieto and Canadian PM Trudeau.
The BOJ policy outcome is due shortly, and analysts at BAML run a quick preview on what to expect from the announcement.
“We expect the Bank of Japan to remain on hold
Keeping both its targets for rates and asset purchases unchanged
Will likely upgrade its FY17 GDP forecast while downgrading its FY17 core inflation forecast
But the revisions are likely to be modest and unlikely to spur changes in the policy stance
Given the central bank's bond buying has continued to slow, the focus is on whether the policy board drops the ¥80tn "guideline" for JGB purchases from its monetary policy statement. The possibility cannot be ruled out, but our base case is that the BOJ refrains from announcing tapering officially, even if the central bank's JGB purchases continue to slow in reality.
Looking ahead, we expect the BOJ to stay on hold until at least the end of Governor Kuroda's current term, and most likely FY18, given that growth in ex-energy core inflation measures is likely to remain far from target.”
Australian Treasurer Morrison said in notes of a speech to be delivered in Sydney Thursday, he will split government debt into funding for day-to-day spending and borrowing for projects like road and rail. Morrison’s debt program follows urging from IMF and RBA, Bloomberg reports.
The treasurer will hand down the budget May 9.
“It can be very wise for governments to borrow, especially while rates are low, to lock in longer term financing and invest in major growth-producing infrastructure assets.”
“The way we have done budgets in the past at the Commonwealth level does not currently make the distinction between good and bad debt.”
The official data released today showed China industrial profits surged 23.8% y/y in March, a huge jump from the prior figure of 2.3%.
However, the strong data failed to boost the demand for the Aussie, leaving the AUD/USD pair motionless around 0.7475 levels.
AUD/USD - weakest daily close since Jan 16
The pair dropped to 0.7458 on Wednesday; the lowest level since January 13 and closed at 0.7472; which is the weakest daily close since January 16.
The primary factor responsible for the sell-off yesterday was a weaker-than-expected headline Aussie CPI, which added credence to the argument of ‘peak inflation’ across the advanced world. Even the Trump tax plan disappointment, failed to boost the Aussie dollar.
Aussie export price and import price index released today also failed to have any impact on the AUD/USD pair. The Dollar side of the story could strengthen later today if the US durable goods orders beat estimates.
AUD/USD Technical Levels
A break above 0.7491 (Mar 9 low) would open doors for a re-test of 0.7533 (10-DMA) and 0.7553 (200-DMA). On the other hand, a breakdown of support at 0.7458 (Jan 16 low) could yield a sell-off to 0.7408 (weekly 100-MA) and 0.7370 (Dec 1 low).
China’s National Bureau of Statistics (NBS) reported on Thursday that the Chinese industrial profits rose 23.8% on yearly basis in March, although slowing from growth of 31.5 percent in the first two months, as cited by Reuters.
Profits in March rose to 688.7 billion yuan ($99.9 billion)
The BOJ concludes its 2-day monetary policy review meeting today, and is widely expected to leave its monetary policy settings unchanged. The BOJ’s yield curve control objective will maintain the short-term policy rate at -0.10% while purchasing the Japanese government bonds at an annual pace of JPY80 trillion.
The BOJ is expected to offer no surprises and will maintain that accommodative monetary policy will remain in place until 2% price target is achieved. However, what may add to renewed JPY sell-off is the downward revision of core inflation from their current annualized 1.5% figure for 2017 in its quarterly outlook report. The central bank is likely to keep the GDP forecasts largely unchanged.
How could the BOJ affect USD/JPY?
The market has widely expected a no change in the BOJ’s monetary policy stance, while the BOJ quarterly economic outlook report may provide some fresh impetus on the yen. Jim Langlands at FX Charts explains, “the short term momentum indicators have turned to point lower and a sterner test of 111.00 seems possible, below which could see a run towards 110.50 and to 110.35 and even to 110.00 although this seems doubtful at this stage. On the topside, minor resistance will be seen at 111.25 and 111.50 ahead of the session high of 111.77, and 112.00 although again this seems unlikely to be seen today.”
“Given the look of the short term momentum indicators, selling rallies is mildly preferred, but without looking for too much. Use 111.50/110.50 as a guide, with one eye on the BOJ.”
BoJ preview: policy on hold, could be upbeat on export growth, gloomy on inflation
BOJ to keep its policy stance intact on Thursday - Barclays
About the BOJ Interest Rate Decision
The BOJ Interest Rate Decision is announced by the Bank of Japan. Generally, if the BOJ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the JPY. Likewise, if the BOJ has a dovish view on the Japanese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.
Stock markets in Asia suffer moderate losses this Thursday morning after Trump’s tax plan failed to impress the investors.
MSCI’s Asia-Pacific index ex-Japan fell 0.1% after hitting the highest level since June 2015. Japan’s Nikkei index dropped 44 points or 0.25%. Shanghai Composite dropped 0.62%, while South Korea’s Kospi traded flat.
President Trump proposed slashing corporate tax rates to 15% from the current 35%. However, the proposal was once again conveniently short of details, leaving investors disappointed. There is growing concern as to how Trump administration intends to finance the tax cuts.
Tax plan disappointment also ensured the S&P 500 index surrenders early gains to end the day 0.05% lower. The 10-year treasury yield backed off from the two-week high of 2.35% to 2.304%.
The Bank of Japan (BOJ) is expected to keep the key policy tools unchanged today and revise its inflation forecasts lower. The ECB is set to hold a policy meeting later today, with the focus on a potential QE taper in the months ahead.
Social media out with unconfirmed reports of airstrikes on Syria's Mezzeh and international airports in Damascus.
The AUD/JPY cross staged a solid comeback in the Asian session this Thursday, mainly driven by a rebound in USD/JPY, as the yen remains broadly sold-off into expectations of a dovish BOJ decision due on the cards in mid-Asia.
However, the gains appear capped as the Asian traders remain on the back foot and refrain from placing bets on risky assets such as equities, AUD, oil etc., in the wake of yesterday’s US tax reforms plan disappointment.
More so, markets ignored upbeat Australian import prices data, as all eyes remain on the BOJ policy outcome, while the US durable goods and trade balance data will take center-stage later in the NA session.
Higher side: 83.80/81 (classic R1/ Apr 25 high), 84.47/50 (Apr 5 high/ psychological levels), 84.65 (50-DMA)
Lower side: 83 (key support), 82.78/70 (20 & 10-DMA), 82.51 (classic S1)
The People’s Bank of China (PBOC) set the Yuan midpoint rate/reference rate at 6.8896 vs. 6.8845 on Wednesday
US Commerce Secretary Wilbur Ross is out on the wires now, via Reuters, speaking on the probe into aluminum imports.
US Commerce department launches investigation into whether aluminum imports are compromising US national security
Could lead to restrictions on aluminum imports into US
Says no conclusions have been made on "232" investigation of aluminum imports
US only has one active smelter that can produce defense aerospace-grade aluminum
As per Bloomberg report, Saudi Oil Minister Khalid al-Falih will talk a possible output cut extension with Russian Energy Minister Alexander Novak within the next two weeks and may discuss some of the issues on the phone as early as this week.
“There seems to be a consensus in that direction, but we’re not 100 percent there,” said al-Falih and added further that, "We still need to talk to all countries. A very important country to talk to, of course, is Russia, the biggest non-OPEC exporter".
The final decision on whether to extend the output cut deal will be made at an OPEC meeting in Vienna on May 25.
The EUR/USD pair caught a fresh bid tone in Asia, as the bulls finally attempted a break from the overnight bullish consolidative phase near 1.09 handle.
The US dollar continues to trade broadly subdued, as dust settles over the US Tax plan disappointment induced sell-off, allowing a slight bid in the EUR/USD pair. The USD index was heavily sold-off into the US tax plans announcement, as the tax plans details left markets unimpressed, as the details were more or less priced-in already.
Later today, the Euro is expected to keep the bid tone intact, as investors gear up for the ECB policy decision, with a no change in the policy settings widely expected. However, the ECB President may provide some hints on tapering alongside talking the Euro zone outlook up, in the wake of receding political tensions surrounding the French election.
Also of note for the major remains a host of fresh economic releases from the US, with the durable goods data to have a significant impact on the USD moves later in the NA session.
EUR/USD Technical Levels
Technical resistances for the pair are aligned at 1.0950/51 (psychological levels/ 5-month tops), 1.0965 (Fib R2) and finally 1.1000 (key resistance). On the flip side, the spot finds next support at 1.0900/1.0898 (zero figure/ 5-DMA), a break below that level could open the door to 1.0870/61 (Fib S1/ classic S1) and 1.0802 (10-DMA).
New Zealand’s finance minister Steven Joyce crossed the wires last minutes, via Reuters, making his pre-Budget speech.
Says to target 10 to 15% debt/GDP by 2025
For 2017 to 2020 NZ is planning $11bn of new spending on infrastructure (NZD amount)
Analysts at ANZ noted that Base metals were slightly higher, with a weaker USD late in the session helping support prices.
"Fundamentals also played their part, with the market digesting the cut to guidance for output from major copper producers. BHP Billiton, Freeport and Antofagasta all lowered the outlook for copper production in 2017, citing disruptions at operations. Nickel bucked the trend in the sector, heading the session lower as sentiment remained weak. A major industry conference has seen participants discussing the recent supply disruptions, with a growing view that the impact will not be as great as originally expected. This comes on the back of muted demand from the Chinese stainless steel sector.
Iron ore prices edged higher as physical traders returned to the market amid a stabilisation in prices. The spectre of a slightly tighter seaborn market helped support spot prices. BHP Billiton and Rio Tinto both reported iron ore output had been impacted by heavy rainfall in Western Australia. The regions wettest summer saw rail lines flooded and ship loaders forced to suspend operations regularly."
As per the report in the Nikkei Asian Review, Japanese life insurers are purchasing foreign bonds at a much slower pace and shifting more of their investment focus to real estate and infrastructure.
The main reason for the slow purchases is the expectation that the Federal Reserve will raise interest rates two more times this year.
The Nikkei says, “Japan's 10 major life insurers are expected to increase their holdings of foreign bonds by 2.9 trillion yen to 3 trillion yen ($25.9 billion to $26.8 billion) on a net basis. That would be down roughly 70% from growth of 8.8 trillion yen in fiscal 2016.”
Life insurers usually invest for long-term; however, rising yields could mean high paper losses.
Analysts at Nomura offered their outlook for today's USD/CNY fix.
"Our model1 projects the fix to be 122 pips higher than the previous fix (6.8967 from 6.8845) and 59 pips higher than the previous official spot USD/CNY close of 6.8908. The basket implied change is 68 pips higher than the previous official spot USD/CNY close (6.8976 from 6.8908)."
Currently, EUR/JPY is trading at 121.40, up 0.26% on the day, having posted a daily high at 121.50 and low at 121.03.
EUR/JPY was well bid at the start of this week and was leading the pack on the yen crosses. The cross dropped overnight from 121.63 to 120.90 the low. At the same time, USD/JPY was bid overnight to 111.77 although gave background to below the 111 handle to 110.86 lows on the back of the dollar getting a whack on Trump's tax plan announcements. The dollar was bid with US yields at the start of the day trading as high as 2.33% in the 10 years before the announcements. Stocks also finished in the red on the back of them.
Markets will now turn to the Bank of Japan who will have its monthly monetary policy meeting later today. However, there are no changes that are expected from the meeting so markets will instead look to Thursday's US Durable Goods Orders and US GDP at the end of the week.
The ECB will be the first risk event though and that is less of a certain outcome and the cross will be a key pair to monitor over the event. “In our view, the pricing of hikes from ECB is very premature as the inflation outlook should not be strong enough to tighten the monetary policy this year. Another argument for hiking rates could be that banks were suffering after the long period of negative policy rate but it does not seem to be the case that the ECB wants to hike just to support the banking sector,” explained analysts at Danske Bank.
From a technical point of view, Valeria Bednarik, chief analysts at FXStreet explained the pair is struggling around a major resistance, the 23.6% retracement of the late 2016 monthly rally at 121.40. "The 4 hours chart shows that not certain directional strength, although the positive tone persists, given that the price is well above the 100 and 200 SMAs, whilst technical indicators have corrected extreme overbought readings, but turned flat within positive territory."
USD/JPY is well bid in early Asia, trading around 111.30 levels despite having faced rejection at the daily 50-MA line in the North American session on Trump tax plan disappointment.
The currency pair rose to a high of 111.78 on Wednesday before ending the day with moderate losses at 111.05 levels. The Trump administration released a skeletal single-page outline for tax reform that was nothing more than Reagan’s “voodoo economics”.
Investors are not convinced that the tax cuts would “pay for themselves in growth, reduction in the deduction and closing loopholes” as Mnuchin indicated. The disappointment led to a drop in the USD/JPY from 111.78 to 111.05 levels.
Focus on BOJ
Bank of Japan (BOJ) is likely to keep the policy unchanged and reiterate that QE will continue for some time. The policymakers in Tokyo would want to avoid any unwanted strength in the currency. The rate setters are more likely to lower their inflation forecasts. The bank is likely to avoid tinkering with the yield curve as well.
USD/JPY Technical Levels
The spot was last seen trading at 111.25 levels. A violation at the immediate hurdle of 111.78 (50-DMA) would signal extension of the rally from 108.13 (Apr 17 low) and open doors for 112.56 (Mar 17 low) and 113.37 (100-DMA).
On the downside, upward sloping 5-DMA level of 110.42 could offer support, which, if breached, would expose 10-DMA level of 109.61. A daily close below the same would signal the rally from 108.13 has topped out and could yield further pull back to sub-108.87 (200-DMA) levels.
Analysts at National Australia Bank (NAB) provides a brief preview of the ECB monetary policy decision due on the cards later in the European session.
“The ECB meeting is the highlight in Europe and again like Japan, a no change in policy is unanimously expected.”
“The fact that a Le Pen - Mélenchon (both eurosceptics) outcome was averted in the first round of the French election and that Macron, a pro-European centrist, is in pole position to win, is no doubt a positive for the ECB.”
“Economic activity indicators are also at a six year high, but with the inflation wobble in March we suspect the Bank and President Draghi will look to keep things stable and wait until the June meeting to make any shift to its forward guidance.”
“A tight lipped Draghi at the press conference could hamper EUR gains, but he could find it hard not to talk the economic outlook up.”
Kyodo, Japanese news agency, carried headlines, citing that PM Shinzo Abe left Japan for a meeting with the Russian President Putin, Livesquawk reports.
Bloomberg reports latest headlines that crossed the wires last hours, citing that White House remains divided on how far to take the North American Free Trade Agreement (NAFTA) action, mulling whether to notify of intention to withdraw from the trilateral trading bloc.
Currently, AUD/USD is trading at 0.7478, up 0.06% on the day, having posted a daily high at 0.7483 and low at 0.7470.
AUD/USD came under immense pressure yesterday and the supply taps remained open throughout overnight markets, slightly supported on the market reaction to Trump's tax plan announcements.
"The AUD will likely remain under pressure today, as yesterday’s CPI data showed that there is little pressure on the RBA to lift rates anytime soon. Concerns over US protectionism will also continue to weigh on commodity currencies. Locally, we will keep an eye on Governor Lowes speech, though we don't expect anything new there," explained analysts at ANZ.
Valeria Bednarik, chief analysts at FXStreet explained that the 4 hours chart shows that the price is well below a now bearish 20 SMA, whilst technical indicators have partially lost their bearish strength, but remain within the oversold territory, suggesting some upcoming consolidation rather than downside exhaustion. "The pair is at risk of falling further, particularly on a decline below 0.7410, with scope then to extend its slide towards the 0.7250 region during the upcoming days."
Analysts at Nomura offered a preview for the next key US data in durable goods orders.
"We forecast a 0.5% m-o-m increase in top-line durable goods orders in March (Consensus: 1.3%). Incoming data suggest transportation components, which tend to be relatively volatile, would contribute strongly to top-line durable goods orders.
Vehicle assemblies and price data suggest that motor vehicle orders would decrease modestly. However, industry data suggest a potential strong jump in nondefense aircraft and parts orders would more than offset the weakness in motor vehicle and parts orders.
Moreover, recent spending on military research and given the previous trend of this series, defense aircraft and parts orders would increase modestly. Excluding volatile transportation components, we expect durable goods orders to remain flat in March following a solid 0.5% m-o-m increase in February (Consensus: 0.4%).
Although we think that the underlying trend of recovery in manufacturing activity remains steady, the output of durable goods excluding the transportation sector decreased 0.3% m-o-m in March, pointing to some slowdown in orders.
On the other hand, business sentiment remained elevated, which may have positively affected businesses’ decisions on capital investment. In particular, the new orders index of the ISM manufacturing survey showed resilient momentum in March despite a slight decline to 64.5 from February’s 65.1.
However, it is unclear how much of this recent optimism would result in actual increase in business capital spending. While we continue to expect the pace of recovery in the manufacturing sector to remain moderate in coming months, incoming non-survey data point to a pause in the recovery of non-transportation durable goods orders in March."
Analysts at ANZ explained that there were a couple of interesting policy developments overnight in Australia.
"First, the Government announced that from 1 July it will impose an ‘Australian Domestic Gas Security Mechanism’ that will give it the authority to limit gas exports in order to ensure domestic supply.
In our view, the real issue is one of price and it isn’t clear from the details we have at this stage what impact these controls will have on the domestic price of LNG.
Watch this space it seems. The second development is the indication the Government will highlight a different measure of the fiscal position in the upcoming budget - the net operating balance.
This measure focuses on operating expenditure. That is, it excludes net capital expenditure – unlike the underlying cash balance, which captures both operating and capital expenditure.
In effect, it allows for debt to be considered in so-called ‘good’ or ‘bad’ terms, with ‘good’ debt that which is used to fund capital expenditure.
Of course, in itself, this doesn’t guarantee that the capital expenditure funded by the ‘good’ debt makes sense. The Treasurer is speaking today and will undoubtedly provide more detail about these
We note, however, that they are hardly radical – with New Zealand long having used the net operating balance as its main measure of the fiscal position."
According to Venezuelan's Foreign Minister Delcy Rodriguez, Venezuela will start the process to withdraw from the Organization of American States (OAS).
Currently, NZD/USD is trading at 0.6895, up 0.06% on the day, having posted a daily high at 0.6898 and low at 0.6888.
The kiwi was offered right down to below the 0.69 handle to 0.6871 lows before attempts back to 0.6900 after the tax announcements from Trump's administration in the US session. Analysts at Westpac explained that last night’s break below 0.6890 and if sustained today, paves the way to 0.6860 (Dec low) initially.
NZD/USD 1-3 month:
Further out, the analysts explained that the Fed’s tightening cycle plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar, pushing NZD/USD down towards 0.6900. "The RBNZ’s persistent reminders it is on hold for a long time should also weigh."
NZD/USD has broken the critical support level at 0.6933/50 and has challenged the support of the 0.6885 mark down to 0.6871 as being the recent previous. Next support is down to 0.6675 as the 29th May 2016 high on a break of the 0.67 handle. On the flip side, a run back on t the 0.70 handle, the previous bulls have the 17th April highs of 0.7035 is sight protecting 0.7060/70 and recent high today around the 200-d ema (0.7067). There is a double bottom at 0.7130 as the mid-Feb lows.
Analysts at Westpac offered their insight to AUD/NZD and rates.
"AUD/NZD 1 day: Higher towards 1.0900 multi-day, global risk-aversion fading (AUD is more sensitive).
AUD/NZD 1-3 month: Higher to 1.10. The cross remains well below fair value estimates implied by interest rates, commodity prices and risk sentiment, although is closing the gap (6 Mar).
AU swap yields 1 day: The 3yr should open at around 2.01%, the 10yr around 2.87%.
AU swap yields 1-3 month: Our RBA outlook is anchoring front end valuations. We expect 3yr swap rates to remain in a 2% to 2.3% range, with core inflation still below 2%,. (26 Apr)
NZ swap yields 1 day: NZ 2yr swap rates should open down 1bp at 2.31%, the 10yr down 2bp at 3.38%.
NZ swap yields 1-3 month: The RBNZ said it has ended its easing cycle and will remain on hold until 2020. That will anchor the short end, although markets will not abandon their expectations for earlier tightening which means occasional spikes in the 2yr will be likely. The long end will continue to follow mainly US yields, which we expect to rise. That means the curve steepening trend should continue. (17 Feb)"
Data source: FX Street
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