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The dollar index slipped further below 93.50 to a near four-month low. This ‘benefitted’ the euro, which broke above 1.14 (briefly) for the first time in almost three months.
Investors continued to be spooked by volatility in the bond markets and the realisation that a stronger pickup in US growth may not materialise in Q2.
This culminated in the cautious undertones we’ve seen in the Asian markets and partly contributed to the greenback weakness.
An unintended consequence was the sustained AUD strength, despite an RBA rate cut and official rhetoric on Aussie overvaluation. The AUD/USD rallied to $0.8164, the highest since 20 January 2015.
Several factors have bolstered AUD resilience recently, including the return of carry trade, expectations that the Australian government will tolerate fiscal deficit for the time being, and recovery in iron ore prices. Now a softer USD will add to that list.
Mixed Asian equities
Asian equities were traded without a cohesive theme with varying performances seen across the region. Chinese markets appeared to be moving into consolidation mode and even Shenzhen Composite seems to have run out of steam. The FTSE China A50 and CSI 300 Index fell further at -0.7% and -0.4% respectively.
This corresponded with a 0.6% decline in H-shares. Investors may be freeing up capital to buy into a fresh batch of 20 IPOs due on 19-20 May, which is expected to lock up CNY 2.79 trillion (USD 450 billion).
The Straits Times Index (STI) continued to consolidate amid waning volume as majority of corporate earnings missed estimates, except Comfortdelgro. Meanwhile, Singapore Airlines, Genting Singapore and Thai Beverage are expected to announce their profits after the market close while Olam and Starhub should unveil their Q1 earnings reports on Friday.
Ahead of the US open
The weaker dollar and hopes of further pushback in the Fed rate increase timeline could provide some relief for US equities. Ahead of the US trade, we are calling US indices firmer with DJIA 18125 +65; SPX 2107 +8.
The market will look to jobless claims data for clues that Fed’s expectation in a stronger Q2 growth is misguided. Consensus is for an increase of 8000 to 273,000 claims.