Market summary
- Business sentiment in Japan is improving according to the quarterly Tankan survey, with big hotels, restaurant services improving at the fastest pace on record and manufacturing rising for the first quarter in seven
- A near 60% surge in apartment developments in New South Wales saw Australia’s building permits rise 20.6% m/m, although permits are still -9.8% lower q/q
- Australian housing lending also rose 4.8% m/m despite higher rates, yet remain -20.5% lower y/y
- China’s manufacturing PMI shows a slightly slower rate of expansion at 50.5, according to a private survey by Caixin
- Switzerland’s CPI data was the latest to come in below estimates, rising just 0.1% m/m (0.2% expected, 0.3% prior) or 1.7% y/y (1.8% expected, 2.2% prior) which relieves some pressure for the SNB to hike further
- Volatility was predictably lower due to US Independence day with all FX majors forming Doji-styled days
- ISM manufacturing contracted for an eight month and at its fastest pace since May 2020, employment dipped back into contraction and prices paid contracted at its fastest pace in six month
- This saw the US dollar weaken as it appeases the ‘one and done’ Fed followers, although moves retraced back towards their open during low volatility trade
- Asian indices posted gains yesterday following a strong lead from Wall Street on Friday, due to softer CPI figures and lower consumer price inflation expectations
Events in focus (AEDT):
14:30 – RBA cash rate decision (we’re leaning towards another 25bp hike to 4.35%)
ASX 200 at a glance:
- The ASX 200 continued higher yesterday, after finding support at its 200-day EMA on Friday
- An RBA hike could potentially send the ASX back below 7200, whilst a pause to see it break above 7300
- A slight concern to the rally from the June low is that daily trading volumes have remained beneath their 20-day MA
- SPI futures point to a flat open today for the cash index
AUD/USD 30-minute chart:
We saw the desired pullback to Thursday’s high yesterday, where a new base was formed before prices rose (alongside volumes) thanks to weak ISM manufacturing data. The subsequent retracement could become a gift if the RBA hike today – and I suspect favour them doing so. Prices are holding above the 20-bar EMA, and we may even see some buying ahead of the event as last-minute bets are placed. If prices pull back, then we’d look for evidence of a swing low between Thursday’s high and the July 3rd VPOC, with resistance zones around 0.6700 and 0.6720 coming into focus (note that the upper 1-day implied volatility zone lands around the 0.6720 high).
Whilst the RBA could hold, it seems unlikely it would contain a dovish undertone required to send AUD/USD materially lower, so the ideal scenario for upside this week is an RBA hike alongside softer US data.
-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
