Head of FX Strategy
Australia’s retail sales for April missed expectations in a big way.
Numbers look especially weak when seen with a per-capita lens, given working age population growth of 2.9%. Per-capita retail sales are down 2% YoY. This signals that household budgets are getting squeezed amid high inflation and higher-for-longer interest rates.
Markets expect no rate cuts from RBA this year, and even a rate hike is back on the table after the upside surprise in CPI last week. This seems inappropriate given:
This means dovish repricing risks remain. Also, with a likely peace deal between Israel and Hamas, markets may take off some of the risk premium built in commodities. Correction also seems to be looming in copper after the recent run higher, and Chinese PMIs today have failed to show significant traction. This is bearish for AUD in the near-term. However, other factors worth watching include:
Still, markets have got a reminder that hawkish repricing may have gone too far, not just for RBA but also for the Fed as FOMC meeting comes next.
AUDUSD was rejected at 100DMA around 0.6585 yesterday, but a close below fibo retracement level at 0.6482 is needed to ensure that a downtrend is in place.
AUDNZD was rejected at 1.10. Q1 inflation for Australia was at 3.6% YoY, lower than NZ’s at 4.0% YoY and yet, market pricing is suggesting more than one rate cut from RBNZ this year while RBA is rather expected to stay unchanged or even go for a rate hike. That spells readjustment risks, and June 2023 high of 1.1056 should cap gains with a reversal below 1.0950 confirming downtrend.
Other recent Macro/FX articles:
30 Apr: Global Market Quick Take - Asia
29 Apr: Weekly FX Chartbook: Fed’s hawkishness meets BOJ’s dovishness
29 Apr: Macro Podcast: Japanese drama - what's next for the yen?
26 Apr: JPY: Bank of Japan adds to reasons to stay bearish yen
25 Apr: JPY: Accelerated sell-off; can the BOJ halt yen's decline?
25 Apr: Thematic Podcast: Deciphering Asian forex interventions
23 Apr: Technical Update - USDJPY ticking higher. EURJPY and AUDJPY at key resistance levels. GBPJPY range bound, bullish breakout?
23 Apr: GBP: What can drive the next leg lower?
22 Apr: Weekly FX Chartbook: Stretched USD strength is raising intervention alert
19 Apr: FX 101: Using FX for portfolio diversification
18 Apr: JPY: Intervention alert, or a BOJ alert?
16 Apr: Chinese Yuan’s Double Whammy - Dollar Strength and Yen Weakness
12 Apr: Riding the Fed-ECB Policy Divergence
11 Apr: ECB rate decision: How to trade the event
9 Apr: CAD vulnerable as market underprices dovish Bank of Canada risks
9 Apr: US inflation report: How to trade the event
8 Apr: Macro and FX Podcast: NFP, CPI, ECB and Japan
3 Apr: Chinese yuan bears are undeterred by PBoC’s grip
3 Apr: FX Quarterly Outlook: The rate cut race shifts into high gear
8 Feb: FX 101: USD Smile and portfolio impacts from King Dolla
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
