Australian dollar universally down on building virus risk

See the latest Australian dollar analysis here:

Macro Afternoon

DXY was up last night:

The Australian dollar was universally soft:

Gold held at the highs:

Oil too:

Dirt is clearly into an uptrend now:

Miners were stable:

And EMs stocks:

Junk is still sending a warning:

Bonds were mostly bid:

Stocks rebounded on the usual late ramp:

Westpac has the wrap:

Event Wrap

US pending home sales posted a surprise record gain of +44.3%m/m in May (vs est. +18%), the annual pace -10.4%y/y (est. -22%, prior -34.6%), as states emerged from the lockdown. The Dallas Fed manufacturing survey was stronger than expected, despite high Covid growth rates in the state. The survey index rose from -49.2 to -6.1 (est. -21.4), back at 2019 levels, led by production rising to +13.6 (from -28.0) and new orders rising to +2.9 (from -30.6). Although employment remained negative (-1.6, prior -11.5), wages rose (+6.8 from -0.2), and most other components showed solid improvements.

German CPI was firmer than expected in June, as was intimated by individual state data, rising +0.6%m/m (est. +0.3%m/m) to +0.9%y/y.

UK BoE released May credit data which showed a deeper pullback in mortgage approvals to a mere 9.3k (est. 25k, average pre-lockdown was above 65k), and a further pullback in consumer credit of -3%m/m (est. flat).

Event Outlook

Australia: May private sector credit will be published today with both the market and Westpac forecasting a flat read, 0.0% due to a slowdown in housing and the soft business outlook. RBA Deputy Governor Debelle will speak at 12:30pm on “The RBA’s policy actions and balance sheet”.

New Zealand: Given the flash result in early June, the final estimate for the June ANZ business confidence survey should confirm an improvement, though the index remains at depressed levels (prior: -33)

China: After a strong comeback, the market expects the manufacturing PMI (prior: 50.6, market f/c: 50.5) and non-manufacturing PMI (prior: 53.6, market f/c: 53.6) to hold their ground in June.

Euro zone: Inflation is likely to stay muted for the foreseeable future; the market is not expecting a material change in June (prior: 0.1%, market f/c: 0.2%)

UKConsumer sentiment has stabilised after the personal finance and major purchase outlooks rose in May. The market expects a slight move up from -30 to -29 this month. The final estimate for Q1 GDP will likely remain unchanged at -2.0%. There is a lot more economic pain to come for the UK.

US: The market view on the S&P/CS home price index remains positive with expectations of a 0.5% gain in April despite Covid. Continuing the trend of positive regional survey data, the June Chicago PMI will be released today (prior: 32.3, market f/c: 44.0). Consensus estimates also see a boost in consumer confidence in June from 86.6 to 90.5. FOMC Chair Powell and Treasury Secretary Mnuchin will testify before the House Financial Services Committee (02:30 AEST) and FOMC member Williams will speak on Central Banking in the Age of Covid (01:00 AEST).

Pick any reason you like for the stocks bounce. My favourite is that it is Monday and weekend virus reporting is always better.

That’s still all that matters. The ASX/SPX correlation continues:

And will determine Australian dollar value until the dust settles around the relative value of stocks versus the recovery in prospect.

David Llewellyn-Smith
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Comments

    • I’m only guessing but the high correlation I think was mainly due to a sentiment/hope trade on a V shaped recovery and the swap lines opened up when there was virtually no trade occurring due to lockdown. AUD and SPX don’t always correlate so what is going to break the correlation? I think possibly the increase in trade again and the demand for USD all in a relative sense. Now u might get decreased sentiment on increase virus in Oz <AUD. Not sure where speculative positions are at the moment though. Always lots of factors obviously commodities etc. Maybe a bit more flight to safety trade, US bonds have been bid. What do u think?

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