- Increase in Australian companies lending revives hopes that the economy can finally reduce its dependence on the mining sector
- AUD/USD on the medium-term continues to suggest further downside potential, only a move above 0.7455 would allow the currency pair to put an end to the negative momentum
- NZD/USD: On the upside, the nearest resistance lies at around 0.68-0.6832, while on the downside the 0.6658 will continue to act as support
- USD/JPY: The currency pair seems to be insensitive to any kind of economic data from Japan, good or bad, reacting only to the release of economic indicators from the US and central bank announcements
- USD/JPY the buying pressure continues to build up with 112 level as the next target
- Canada Q1 GDP expected to be very strong (+2,8% y/y) as the rebound in oil prices provides some relief to the economy
- We believe that the Fed's monetary policy helped to strengthen the Canadian currency for the four first months of this year as financial markets ruled out any rate hike. Now that Fed members are back on the hawkish side, the Canadian currency is heading lower, nonetheless we believe it is temporary and we remain bullish on the Canadian dollar as oil production should start again and increase upward pressure on the loonie
After a very quiet Monday due to a bank holiday in UK and Memorial Day in the US, volatility picked up in Asia on Tuesday. The biggest move came from the Australian dollar, which rose 0.82% against the US dollar after data showed that lending to Aussie companies increased by 7.1%y/y in April, the biggest increase since 2009. The jump in business lending revives hopes that the economy can finally reduce its dependence on the mining sector as it rebalances towards the other sector. AUD/USD tested 0.7251 in Sydney and consolidated slightly lower at around 0.7240. On the medium-term, the technical structure continues to suggest further downside potential. A move above its 200dma, currently lying at 0.7455 would allow the currency pair to put an end to the negative momentum.
The New Zealand dollar was the second best performer as it surged 0.50% against the greenback amid a surge in business confidence in May. The gauge climbed to 11.3 from 6.2 in the previous month. The report also showed that inflation expectations fell slightly in April from 1.42% to 1.40% in the previous month. NZD/USD rose from 0.6689 to 0.6731 in Wellington and stayed above its 200dma currently at 0.6658. On the upside, the nearest resistance lies at around 0.68-0.6832 (psychological level and 50dma), while on the downside, the 0.6658 will continue to act as support.
In Japan, the yen consolidated previous gains in spite of the release of solid data from the industrial sector. Industrial production rose 0.3%m/m in April (preliminary figures), beating median forecast of -1.5% but below previous month’s reading of +3.8%m/m. Vehicle production contracted 9.7%y/y in April, while small business confidence eased to 45.6 in May from 47.8 a month earlier. Finally, construction orders contracted 16.9%y/y in April after rising 19.8% in March. All in all, the currency pair seems to be insensitive to any kind of economic data from Japan, good or bad, but reacts only to the release of economic indicators from the US and central bank announcements (Fed and BoJ). USD/JPY is currently trading at 111.25. Buying pressure continues to build up with the 112 level as next target.
In the equity market, Asian indices are set to close in green for the second straight with the Japanese Nikkei and Topix up 0.98% and 1.01% respectively. In China, the CSI 300 was up 3.11% in spite of a sharp plunge of 10% in index futures. The price bounced back to its previous level in less than a minute. Offshore, the Hang Seng was up 1.39% and the Taiex was flat. European futures are trading in positive territory but buyers are a little shy this morning.
Yann Quelenn, market analyst: “Oil prices set to boost Canadian GDP for Q1: There are certainly strong expectations today for Canada’s Q1 GDP, which will be released this early afternoon. The data is expected to come in at 2.8% y/y, higher than Q4 2015, which printed at 0.8% y/y. The rebound in oil prices is, for most of it, providing with some relief to the Canadian economy. The loonie has appreciated strongly since the start of the year, gaining more than 15 figures against the greenback. Yet, fears that the rebound in oil prices was mostly due because of short-term supply disruptions are growing and the currency is weakening as a result.
Oil prices are not the only driver of the USD/CAD pair. We believe that the Fed's monetary policy has helped to strengthen the Canadian currency for the four first months of this year as financial markets ruled out any rate hike. Now that Fed members are back on the hawkish side, the Canadian currency is heading lower. Nonetheless we believe it is temporary and we remain bullish on the Canadian dollar as the oil production should start again and increase upward pressure on the loonie and our dovish stance on the Fed leads us to think that markets may reverse, once more, to bearish US dollar.
Global uncertainties have pushed the Bank of Canada to maintain a patient stance and the central bank announced earlier last week that the overnight rate is kept on hold at 0.5%. Our bullish view on the Canadian dollar has to be qualified. Indeed, we consider that the Q1 data will be a small relief as the domestic environment is at stake. Business investments for example are clearly suffering. Also, natural disasters such as the recent Alberta wildfires would also clearly weigh on future revenues.” —
Today traders will be watching unemployment rate form Germany and the euro zone; CPI from the euro zone and Italy; GDP from Italy; trade balance from South Africa; personal income and spending, PCE deflator, consumer confidence, Dallas Fed manufacturing index and Chicago purchasing manager index from the US; GDP from Canada.