Aussie bears hurt by strong GDP

Clare MacCarthy

Senior Editor, Saxo Bank
Clare MacCarthy first joined Saxo Bank in 2012 to work as a senior editor on TradingFloor.com. Prior to this, she worked as a Denmark-based foreign correspondent for The Economist and the Financial Times and also served as Copenhagen bureau chief for Dow Jones Newswires.

"We have a pretty weak US dollar overnight and a stronger Aussia dollar after it got a boost from strong GDP growth showing a 3.1% advance in growth year-on-year during the first quarter," says John J Hardy, Saxo's Head of Forex Strategy.  "This throws the bearish case for AUDUSD into disarray." For the dollar, according to Hardy, the key point at this juncture is the degree to which the recent reversal back in the US 10-year yield was a false signal and part of the whole confusion and disruption from the EU sovereign debt and Italy situation. "If we start to see US yields rising again it'll be an interesting test for the markets."

In Italy itself, the new anti-establishment government has published a populist programme that would violate EU budget rules. "This could blow a 4% to 5% hole in the Italian budget deficit," Hardy says.

 

Source: Saxo Bank

Equity markets are mildly risk-on and the S&P 500+ has edged higher again with the 2,800 level being the next major resistance zone, reports Peter Garnry, Saxo's Head of Equity Strategy. "But though sentiment has improved short-term we remain neutral on equities. Next year, 2019 seems to be shaping up to be a year with a lot of trouble – we have the US fiscal stimulus that will end in 2019 at the same time that the budget deficit will massively increase supply of Treasuries at the exact same time we see the peak of the end of monetary stimulus from the Fed stimulus," Garnry warns.

In commodities, meanwhile, a potentially troubled Opec meeting awaits on June 22 in part because the US has quietly asked the bloc for a 1m barrels/day increase to counter disruptions – partly caused by its own sanctions against two members, says Ole Hansen, Saxo's Head of Commodity Strategy. The November midterm elections are looming and rising retail gasoline prices (now the highest since 2014) could attract some difficult headlines for Trump and the Republicans. "The oil upside is likely to be limited ahead of the meeting," he adds.

Finally, gold remains glued to $1300/oz as a softer dollar helps to offset nervousness ahead of the June 13 Federal Open Market Committee rate hike. A break of either $1286 or $1308 would likely determine the near-term direction.

Disclaimer

Saxo Capital Markets Pte. Ltd. (“SCM SG”) may distribute information/research produced within the Saxo Bank Group pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, SCM SG accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact SCM SG at +65 6303 7800 for matters arising from, or in connection with the information distributed. All legal documentation and disclaimers can be found at https://www.home.saxo/en-sg/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication. 

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)