Financial markets appear to be taking a breather this week. We are in this period now where the debt ceiling drama has come and gone, and the FOMC meeting is not until next week, so markets are just going through the motions in the absence of any major drivers of sentiment.
Aussie dollar finds support
The Aussie Dollar has not been standing still though. The AUD has rediscovered some form after the RBA was again not shy in raising interest rates, pushing the benchmark rate to above 4%. The AUDUSD rate made a push in the direction of the US$0.67 level and is today consolidating recent gains despite the softer Australian GDP print. And, with RBA Governor Philip Lowe signalling that more rate hikes could be on the way, the AUD is attracting buyers on an improved yield outlook for the currency.
Chinese trade balance data today was a moderate blight on the market mood. China’s May exports came in at -7.5% y/y (versus -0.4% expected), while imports were -4.5% (versus -8% expected). The sluggish nature of the Chinese export data is a concern for investors, however, hopes that we could see some stimulus from the PBOC softened the blow of the Chinese data today.
The oil price has dipped, with some of the early momentum following the new Saudi production cuts starting to wane. While the OPEC+ meeting provided some clarity to the market from the supply side, it is the demand side where most of the questions are remaining. Lack of momentum in the Chinese economy is hampering the oil price. While oil traders are also assessing the impact on demand if the FOMC stays with higher interest rates for longer.
Gold is trading in steady fashion now that the USD upswing witnessed throughout May appears to have plateaued. The spot price is contained below resistance in the $1970 region which for the time being acts as a barrier to further upside.
US treasury yields have come off the boil which has allowed the gold price to stabilise. However safe-haven demand has somewhat dried up which is curtailing any northwards aspirations in the gold price.
By and large, traders are ‘marking time’ ahead of the next Fed meeting. So, while there is sanguine feeling right now, it will not be long before attention again shifts to US interest rates in the form of the FOMC meeting next week.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
************
