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CBA FX Morning Commentary

Posted by Joseph Trevisani on Jun 6, 2013 10:37:00 AM

Thoughts from our Strategy Team

 EUR/USD edged higher and was holding a little over the 1.31 level before the ECB announcement. GBP/USD has pushed up over the 1.5450 level as markets continue to reassess the UK’s growth prospects. Part of the move is also ongoing pressure on the USD in the wake of yesterday’s softer than expected ADP print and ahead of tomorrow’s NFP equivalent. USD/JPY dipped temporarily under the 99 level overnight. The USD was soft over the Asian session as well, reflecting also the flat Beige book.  US 10 year bond yields eased 6bps as the soft ADP raised doubts about when the Fed would taper its asset purchases.  We highlight that although ADP is a good indicator of the US labour market it is not a reliable indicator of non-farm payrolls (released Friday).  The ADP has missed payrolls by at least 50,000 55% of the time since March 2010 (see chart below).  Nevertheless, the USD is likely to remain heavy ahead of non-farm payrolls.

 Europe is back centre stage for the time being. The ECB meeting today (7.45am EST/12.45pm BST) is a clear catalyst for a potential move higher. We expect no policy change after the ECB last month cut the main refi rate by 25bpts to a record low of 0.5% and cut the marginal lending rate by 50bpts to 1.0%.  Draghi’s press conference will be more important for near term outlook for EUR (8.30 am EST/1.30pm BST).  Any repeat of comments about having an “open mind” on cutting the deposit rate below 0.0% may put downward pressure on EUR, though positioning ahead of US non-farm payrolls is likely to be more important and support EUR after the weak ADP report. 

 GBP/USD had a strong 24 hours, and has traded up to 1.5460 in Europe today, helped by yesterday’s firm UK Services PMI and a softer USD.  The services PMI jumped to 54.9 in May from 52.9 in April, a 16-month high. The services PMI adds to Monday’s upside surprise in the Manufacturing PMI, which also moved into expansionary territory in May. Bank of England Governor King presides over his final Monetary Policy Committee meeting today (7am EST/12pm BST), where no policy change (and accordingly no post‑meeting statement) is expected.  EUR/GBP has fallen from yesterday’s highs, and can extend this loss if we are right about a dovish ECB.

AUD has received little support from the soft USD as global sharemarkets remain under pressure, and volatility continues to trend higher. The April Australian trade surplus was ignored by the AUD.   The VIX has lifted from 12.45% in mid-May to 17.50% yesterday.  AUD 1 month vol has doubled since early April.  These are not high levels for vol, but AUD and NZD are usually negatively correlated with rising vol. because they are not ‘safe haven’ currencies.  By contrast, JPY is a safe haven currency (albeit reduced given its narrower current account surplus) and has strengthened over 10% against AUD since April.  If vol. keeps trending higher, AUD and NZD may still ease even if US non-farm payrolls disappoint expectations.  More broadly, an environment of below expectations economic data from the US, China and the Eurozone (the UK is an exception) raises the risk of a mid-year global economic slow-down – a difficult environment for AUD and NZD.

The new governor of the Bank of Canada, Stephen Poloz, appears before the House of Commons Standing Committee on Finance (8.45am EST/1.45pm BST).  His testimony will provide some insight into his reading of the Canadian economy, particularly his view on high household debt and the high CAD.  CAD is likely to come under pressure if Poloz steps away from the previous governor’s weak tightening bias.


AUD & NZD Today

 AUD pressure overnight saw it break through strong buying interest at 0.95c and trigger stops on its fast fall to the mid 0.9430’s as the whole world turns against Aussie calling for lower and lower levels …. the lightening up of USD longs ahead of Payrolls was the catalyst for Asian intraday shorts to take profits and this then triggered a round of Exporter buying squeezing AUD back over 0.95c in the process …. So 0.9420/0.9550 looks to be the range to hold going into Payrolls noting stops thru 0.9550 which if will run into Aust Corp sellers ahead of the 0.96c level. May Construction data is out tonight and will be keenly watched for further evidence that the non-mining sector is taking the baton from the mining sector as the RBA/Aust Govt hopes. NZD also down to fresh lows overnight held from falling below 0.79c on active Exporter buying combined with profit taking from intraday shorts as well …. Kiwi has squeezed into selling interest that was positioned above 0.7980 on the pullback with this 0.79/0.80c range looking to hold on the day.

Australian insolvencies hit record for month of April


Thoughts from our Trading Team

 Aud/usd:  continues to grind lower daily.  Very good buying interest overnight at .9435-40(low both centres Sydney/London) from Corporate names.  Some profit taking ahead of tomorrow NFP causing the pullback to the .9500 region where NY walks in.   Resistance .9505/10(yesterday’s lows and overnight break) then .9545-50 where NY left it yesterday. 

 USD/JPY:  Good bids at 98.80, 98.50, 98.00  providing support for today.  The sellers have moved down to 99.50.  I think the pullback in the dollar will continue into NFP tomorrow and beyond should the number disappoint to the downside. 


Australian Trade Data

 The April international trade data extended the goods news of improving trade balances over early 2013. While the modest April trade surplus of $28 million was shy of market expectations, previous monthly trade data were revised substantially higher. Indeed, the originally reported March trade surplus of $307million was revised up to a $555 million surplus. And February’s originally reported trade deficit of $111 million was revised up to a surplus of $203 million. April’s surplus fell short of market expectations which centred on a $180 million trade surplus (CBA’s forecast:+$500 million). The freshly minted three trade surpluses in a row (to April) were the first posted since December 2011. 

 Commonwealth Bank of Australia




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