Market Drivers For May 29, 2014
Europe and Asia
AUD: PCE -4.2% vs. -1.6%
JPY: Retail Sales -4.4% vs. -3.4%
North America
USD: GDP - 8:30 AM
USD: Weekly Jobless Claims 8:30 AM
USD: Pending Homes - 10:00 AM
With most of Europe off on a bank holiday today, the price action was elsewhere in the currency market, with the Aussie receiving the bulk of the attention as capital investment figures proved to be better than expected. The PCE data out of Australia was actually much worse on the headline basis, dropping by -4.2% versus the forecast -1.6%. The underlying details showed a different story though and traders bid up the Aussie throughout the night taking the unit above the 9300 level for the first time this week.
Although the Capex figures showed a predictable decline in the mining sector, they were nevertheless 7.8% higher than originally forecast. Furthermore, investment in non-mining sectors saw a gradual upswing suggesting that the Australian economy is making a relatively smooth adjustment. Overall equipment, plant and machinery spend were expected to rise 2.8% on the quarter contributing positively to the GDP.
The news indicates that the Australian economy has clearly stabilized and RBA monetary policy is likely to remain static for the foreseeable future, lending a measure of support for the Aussie. The AUD/USD rallied throughout the night rising as high as 9313 before profit-taking kicked in to take the pair below the figure once again. The news also pushed the AUD/NZD cross above the 1.0900 level as sentiment towards the Kiwi continues to sour on disappointing business survey results and lower milk prices at the last auction. Although the RBNZ is expected to raise rates at its next meeting in June, this may well be the last time the central bank does so for the rest of the year and the Kiwi is therefore vulnerable to further profit taking if that scenario comes to fruition.
In Europe, the eco calendar was very quiet and most of the movement was dictated by end of the month flows. The euro caught an early bid on what is believed to be some end of month dollar squaring by reserve managers with the unit bouncing above the 1.3600 figure. The euro remains in a downward trend but every 50 pip move is a battle as the single currency finds support in the 1.3500-1.3600 region from long term buyers.
In North America today, the market will receive a second revision of Q1 GDP with the market anticipating a sharp move downward to -0.6% versus the 0.1% anticipated. With sentiment skewed to the downside, the dollar has been under pressure all night long as US yields remain mired below the 2.5% level at 2.42%. Therefore, any upward surprise and especially a positive reading could cause a flurry of short covering activity later in the day. USD/JPY sunk below the 101.50 level in reaction to the drop in yields but it could pop back above 102.00 on any positive revision to the data.