The Aussie marched higher early Wednesday, extending yesterday’s bullish run and traded close to 0.73 against the US Dollar as Australia’s growth figures smashed markets expectations. The surge in export data on Tuesday drove annual GDP to 3.1%, its fastest expansion since third quarter 2012. The better than expected data led markets to believe that odds for further easing by the RBA in the short run are hard to justify solely on weak CPI figures which remained below the centrals bank target range. Speculators are now pricing in a 45% chance the central bank will cut its benchmark to 1.5% by August, compared with about 60% last week. However, given the fact that exports were the major driver to economic growth, it might not be sustainable on the longer run, especially if Chinese data remain fragile, which could limit further gains on the commodity currency.
The pound was the biggest loser yesterday, falling more than 160 pips against USD, the biggest one-day drop since February. Once again the currency was driven by polls showing supports for a Brexit rising. Most recent online poll by ICM showed 47% of Britons favored leaving the European Union opposed to 44% voting to stay. With only three weeks remaining until the referendum date expect the pound to ignore all economic figures and focus solely on what polls has to say. I continue to prefer selling the rallies than buying the dips as we get closer to June 23.
Japanese prime minister Shinzo Abe has decided to delay consumption tax increase until October 2019 as opposed to April 2017. The news was supposed to be negative Yen as it comes in the form of fiscal easing, but the reaction was totally the opposite and the Yen appreciated strongly against its major counterparts. Buy the rumors and sell the facts could be the best explanation on how the Yen is reacting now as it seems the tax delay has been priced in the last couple of days and risk aversion among equities investors is playing as an additional support to Yen’s strength.
Heading into the U.S. trading session, ISM manufacturing report might not provide the boost needed by the US dollar as the index is expected to fall for the second consecutive month. Chicago, Richmond, and Markit’s PMI’s released earlier are good leading indicators which all shown weakness in the manufacturing sector. However, with only two todays until Fridays NFP it will be interesting to watch the employment component of the index. Traders should bear in mind that markets are now well prepared for a U.S. rate hike between June and September, which means negative released from the U.S. will have a stronger impact than positive ones on the U.S. dollar.
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