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    Asian Session – Aussie gains after strong GDP; Yen jumps on sales tax announcement

    The Australian dollar was lifted by better-than-expected GDP data today, as the Australian economy continued to outperform other advanced economies. Australian GDP growth in the first quarter was 1.1% quarter-on-quarter, beating forecasts of 0.8%. Annual growth in the first quarter accelerated to 3.1% and was helped by an upward revision to the previous quarter.

    The aussie jumped 0.8% against the dollar to hit a two-week high of 0.7298 as traders pared back expectations of an RBA rate cut. But it was unable to hold on to its gains and slid to 0.7258 in late Asian session.

    Also performing strongly on Wednesday was the yen, which was driven by several factors. Risk-off mood supported the Japanese currency at the start of Asian trading but the yen got a further boost on the announcement by Japan’s prime minister in parliament today that the government will postpone next year’s sales tax increase by 2½ years. There is speculation that the sales tax delay will be complemented with an additional fiscal stimulus package of up to 10 trillion yen.

    Investors interpreted this as a possible sign that the Bank of Japan may not see the need for further monetary stimulus if fiscal policy is relaxed. The dollar fell to 109.64 yen after the announcement, while the euro hit a low of 121.99 yen.

    Market sentiment was weighed by disappointing manufacturing PMI out of China today, which raised concerns of a faltering recovery in China. The official manufacturing PMI was unchanged at 50.1 in May and was slightly above estimates of 50.0. However, the private Caixin PMI came in below estimates at 49.2 in May. This was below the April figure of 49.4 and the 15th consecutive month of contracting activity.

    The Chinese yuan weakened after the data with the dollar hitting a 4½-month high of 6.5941 yuan earlier in Asian trading before easing to around 6.59. On Tuesday, the People’s Bank of China set the lowest midpoint in 5 years.

    The euro was firmer against the dollar on Wednesday, climbing to 1.1138 dollars in late Asian session, but the pound remained under pressure and slipped below 1.45 dollars. Sterling fell sharply yesterday after two new polls showed narrowing support for the UK to remain in the EU.

    Commodities were mostly down today with crude oil prices moving lower in cautious trading ahead of an OPEC meeting on Thursday. There are little expectations of OPEC producers making a fresh push for a production freeze following the recent rebound in prices and this could be seen as restricting further gains in the coming months. US oil futures were down almost 1% in Asian trading at around $48.65 a barrel.

    Gold bucked the trend though as it benefited from the increased risk aversion and the slightly weaker dollar, which was hurt yesterday from mixed data out of the US. Gold prices were up 1.7% at $1216.40 an ounce in late Asian session.

    Looking ahead to the rest of the day, UK manufacturing PMI and the final PMI readings for the Eurozone will dominate the European session, while in the US, the ISM manufacturing PMI will be the main focus.

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