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Economies of Note

After Tuesday’s meeting where the RBA kept rates on hold as expected at 1.5% the AUD has rallied back over 0.7500 against the USD supported by a better than expected GDP result for the March quarter. Data released showed that the economy grew by an anaemic 0.3% in the first quarter, but this was better than suggested after the poor balance of payments figure released on Tuesday. After breaking through 0.7500 the AUD extended gains to a month high at 0.7565, has now consolidated around the 0.7540 level. The RBA reaffirmed its expectations of ongoing strengthening economic growth in its Tuesday statement even though year-on-year growth has slowed from 2.4% to 1.7%, placing GDP growth close towards the bottom of the 2-3%  RBA target range.

That’s not a sterling result but still in positive territory giving the RBA potential for a rate cut later in the year (Q3..?). Also helping the AUD was a small 0.2% lift in the iron ore price. We expect the AUD to consolidate around current levels over the next few days but another push towards 0.7600 cannot be discounted and should attract selling interest given the Fed rate hike expected next week.

New Zealand
The New Zealand Dollar continues to strengthen Thursday reaching a high of 0.7205 during early morning NY trading. Now trading at 3 month highs the kiwi surged ahead on global risk appetite and a softening US Dollar. Global Dairy Actions Monday showed an increase of 0.6% overall the 6th consecutive rise – federated farmers chairman Haggard suggested prices should remain stable in the near future. The news boosted the New Zealand Dollar demand. James Comey testifies before congress tomorrow morning, expect the markets to hang off every word. The bearish NZD outlook remains leading into the second half of the year based on higher expected US interest rates and a stronger US Dollar overall. Resistance is 0.7250 then 0.7350 the high of 26th January 2017, 0.7050 support.

United States
Expect trading to be choppy ahead of events for “super” Thursday, the Comey testimony, ECB meeting and UK election. There is plenty here for USD volatility! The Comey testimony is already generating headlines after the publication of his statement on the Senate website, more negative news for President Trump from Comey’s  verbal answers tonight will cause markets to negatively reassess the potential for continuation of the Trump policy agenda on taxation reform and infrastructure spending. US equity markets closed higher, as the risk-off tone seen earlier this week abated, reversing a two day price slide and oil was sharply lower, falling over 4% as an unexpected increase in US stockpiles heightened concerns that the global supply glut will continue.
Trading in the EUR/USD has been choppy trading in a 1.1282-1.1204 range overnight, currently sitting around 1.1255 and we expect USD to trade around current levels until some of tonight’s news hits the wires.

United Kingdom
It’s all about the election tonight with polls continuing to show the Conservatives with a narrow lead. The GBP has continued to trade in a narrow range although trending higher and we expect a break out either way depending on the result, which should be known after early exit polls around midday NZ time tomorrow. The GBP traded up to a 10 day high of 1.2970 against the USD last night as markets punted that Theresa May’s Conservatives will win tomorrow’s election. The FTSE was lower, having its biggest fall in 6 weeks, as multinational company stocks who benefit from a weaker GBP came under selling pressure.  However the polls continue to be conflicting with six polls published on Wednesday, of which two showed the Conservatives widening their lead over Labour, two showed a narrowing and two were unchanged. If there is an increased majority for the Conservatives we could see a GBP breakout to the 1.3200 level against the USD…..tomorrow will tell..!!

Along with the ECB meeting, the EU will release a revision of its Q1 GDP figures tonight. This is expected to confirm that the economy grew by 0.5%  in the three months to March. A disappointing figure may affect the EUR, but a larger reaction will be triggered by the ECB decision and comments. Currently the Market has been largely pricing in a hawkish stance coming from Draghi, but such sentiment was tempered by latest flash CPI figure, down to 1.4% in May from 1.9% in April, and recent rumours of an inflation forecast downgrade. Unless Draghi mentions the end of QE being at sight, there appears to be little room for advances, particularly if the inflation forecast is actually downgraded. EUR/USD overnight trading was solid making a high of 1.1282, despite disappointing German new orders data for April, which fell 2.1%  compared to March’s 3.5% increase, but this was shrugged off as being attributable to a seasonal decline. Immediate support resistance levels are 1.1200- 1.1300, we favour continued EUR strength around the top of the range to see the week out.

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