Aussie and Kiwi set the tone

A bid tone has been maintained through Asian trade even in the absence of fresh developments to bolster sentiment.

Source: Bloomberg

Macro events have been fairly isolated, with a couple of surprises from Australia and New Zealand. The Reserve Bank of New Zealand set the tone early in Asian after announcing a ‘surprise’ 25 basis point rate cut, taking the cash rate to 3.25%. The RBNZ went through a hiking cycle last year with the last move in rates taking place in July 2014. It also suggested that ‘further easing may be appropriate’ and the market has certainly done a good job in pricing that in. While NZD/USD is the pair most would have been watching on the back of the news as the pair traded at five year lows, AUD/NZD turned out to be the pair to watch as the
AUD also responded to local jobs numbers. The pair is up well over 2% for the day and a strong set of local jobs numbers has been the key. Australia added 42,000 jobs in May, well above estimates which were looking for a 2,900 loss. The unemployment rate also fell to 6% while forecasts were for it to remain steady at 6.2%. However, most of the jobs added were part-time but the market was relatively unperturbed by that.

Jobs signal recovery?

While many will question the jobs numbers, these figures show strong signs of improvement in the Australian economy. Perhaps the recent interest rate cuts and Federal budget have started to bring confidence back to the jobs market. However, the recent drop in capex numbers and intentions will remain a key concern for many investors. AUD/NZD was fast approaching parity just three months ago but managed to bounce strongly and has now surged through $1.1000. Along the way the pair broke a downtrend which has been in place since March 2013 and came in at around $1.0800. This fresh break could see the pair test November highs in the $1.1300 region. On the calendar today we still have China’s industrial production, fixed asset investment and retail sales to look out for. This could cause some further volatility for risk currency pairs. The ASX 200 has not paid much attention at all to the stronger AUD and has rallied none-the-less. After a woeful performance in May and the start of June, we were bound to get some strong buying interest at some stage. The question now is whether this bounce is sustainable and if it can entice investors who are on the sidelines. June tends to be a good month for equities, particularly heading into the end of the financial year. This could tempt some investors to get into bargain hunting mode and pick stocks that have been on their wish list for a while. 

Flat open for Europe

Ahead of European trade we are calling the major European bourses relatively flat to mildly weaker. Attention continues to be centred on Greece and while there was some optimism ahead of the meeting in Brussels, S&P’s downgrade of Greek debt and comments were enough to sap some of the optimism. However talks will be ongoing and headlines will continue to fly around. Bundling Greece’s debt does not necessarily mean the payment will be made and I won’t be surprised to see further volatility ahead. EUR/USD is just holding on to the $1.1300 handle and given data is light today I don’t expect any big moves unless Greece headlines emerge.




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