IG Markets, Afternoon Thoughts

AUD/USD

After yesterday’s disappointing jobs print, the AUD finished the Australian session around the 1.0590 mark, having bounced off its low of 1.0563. With an interest rate hike now unlikely to occur before August, the AUD is set to be dictated by commodity prices and global sentiment. This was evident last night as US markets ended a six-session losing streak to post modest gains. With a degree of risk appetite returning to the market, and commodity prices firming from recent lows, the AUD benefitted from its ‘risk’ status to recapture the 1.060 level, trading up 1.0628 by the close of the US session. In today’s Asian trade, the AUD drifted over the course of the morning to hit a low of 1.0613, before surging back into the 1.0630 range after Chinese year-on-year import growth surged more than expected (28.4% versus 22%). The pair currently stands at 1.0634.

USD/JPY

It was another relatively subdued night of trading in the USD/JPY cross. As alluded to yesterday, a resumption in positive economic data emanating from the US and other major Western economies will likely be the catalyst for the greenback to strengthen against the yen. Overnight, we saw the US trade deficit surprisingly narrow during the month of April on record export volumes. This helped to inspire a long overdue bounce in US equity markets, which saw money begin to flow out of the safe-haven yen and into the USD, with the pair moving to a high of 80.42 before settling at 80.36. This trend reversed during Asian trade, with the pair drifting back to 80.10.

EURUSD

After falling to a low of 1.4478 following the ECB’s on hold decision and accompanying rhetoric that ‘strong vigilance’ was needed to contain price pressures, the EUR/USD managed to claw back some of its losses during the US session. While the reaction to the ECB meeting was a classic ‘buy the rumour, sell the fact’ scenario, much of the ensuing weakness was a result of a widening rift between the ECB and German government over the Greek debt situation. Nonetheless, US traders looked past these problems and bid the EUR/USD back up to a high of 1.4538 before closing the US session at 1.4509. In Asia, the pair has strengthened a little to be around the 1.4534 mark. Tonight, the focus will be on French industrial production numbers at 4.45pm (Melbourne Time), followed closely by another speech from ECB President Mr Trichet.

GBPUSD

The sterling saw selling pressure overnight as the Bank of England left interest rates on hold for the twenty-seventh consecutive month. The move was widely expected, but still resulted in cable weakness, as participants reduced their long exposure on the belief that rates could be put on hold for longer than expected. The cross fell to a low of 1.6364, before largely trading sideways for the remainder of the European and US sessions. After opening the Asian session at 1.6358, the market has pushed modestly higher to be hovering around the 1.6365 level. Looking ahead, the European session is going to be dominated by a number of important economic readings. These include UK manufacturing production, PPI input prices and consumer inflation expectations, all which are due at 6.30pm (Melbourne Time). The market is expecting a flat reading on manufacturing production and a fall of 1.2% in PPI prices.

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