As expected, the Reserve Bank of Australia kept the interest rate unchanged at 1.75% and the Aussie (+0.96%) outperformed its G10 counterparts against the US dollar. The AUDUSD rallied to 0.7438, taking away the 100-day moving average. Trend and momentum indicators are positive today. Clearing the 50-day moving average, 0.7440, the AUDUSD could gain enough momentum to challenge the 0.75 hurdle, last seen on May 4th.
Although the RBA’s accompanying statement hinted at a neutral shift in the tone, moderate global growth and slowdown concerns in China could easily bring the RBA back on its guard. Especially, if the softening in Federal Reserve’s rhetoric lends support to a further appreciation in the Aussie toward the 0.7835, April 20th peak.
The suspense around the Fed’s policy outlook is growing. In her speech yesterday, the Fed’s Chair Janet Yellen acknowledged the disappointment around the US jobs report in May, but added that one should not attach too much significance to a single monthly report. Though a single data point is not representative of the global state of the economy, one could think that the weakness in the global economic outlook and the slowdown in both developed and emerging markets may have started to have a negative impact on US labour data. It’s certainly too early to jump to conclusions, nevertheless, the probability of a June, or July, hike could be comfortably put on the shelf. Markets are now pricing in the Fed's next move, if any, for the September meeting.
The softer US dollar is supportive of oil and commodity prices.
The FTSE rallied past 6300 on firmer oil and commodity prices. Miners and energy stocks are the frontrunners in London.
Globally, UK stocks remain in bulls’ hands as investors question the accuracy of the latest Brexit polls. This being said, one should bear in mind that risks prevail and that a renewed Brexit-related panic could cause a drop back toward the 200-hour moving average, 6245p.
The GBPUSD shortly rallied to 1.4660 on what is believed to be a fat finger. The declining divergence between the Fed and the Bank of England is also lending some support to Cable. The bears’ excitement around the Brexit polls favouring the ‘Leave’ camp is fading as inconsistencies in the latest polls have raised doubts regarding the accuracy and prediction power of the latter. Though the pound is a better bid today, the market remains comfortably short on sterling before the June 23rd referendum. The premium on 3-month maturing put options over the call options exceeds 500 points, a historical high level.
With trade at the top of the agenda, expectations for a smooth running G7 Summit were low even before the meeting started. A