Daily FX Update, 3 June 2015

OVERNIGHT MARKET UPDATE:

·         US headline April factory goods orders fell 0.4% m/m following a revised 2.2% gain in March. Ex-transport, however, orders were unchanged for the month and fit with the May ISM data suggesting that the manufacturing sector may be beginning to stabilise. US auto sales for May at the three big auto producers beat expectations of a 1% fall. Sales are estimated to exceed 17 million this year, which would be their strongest level since 2001, providing some evidence of a more resurgent consumer.    

·         The euro area preliminary estimate of May HICP inflation was higher than expected, rising 0.3% y/y vs 0.0% in April. Core inflation was 0.9% y/y versus 0.7% y/y expected. It will be interesting to see how the markets digest Draghi’s press conference tomorrow following the ECB policy meeting as he needs to balance the existing forward guidance against the still fragile euro area recovery and gradually improving inflation data. 

·         In the currency markets, the AUD extended on post RBA gains as markets failed to find an explicit easing bias. EUR extended gains and triggered technical stops after the inflation dragon rumbled, while USD broadly sold off after FOMC Governor Brainard cast doubt on the Q2 recovery.              

·         US Treasury yields rose further overnight, with the 10-year yield up 8 bps (2.26%) to a two-week high. Meanwhile, positive Greek headlines and encouraging euro area inflation data contributed to an increase in European bond yields.     

·         Major US bourses were down across the board, at -0.1% to -0.2%.

·         Energy markets firmed, with prices for WTI and Brent up 1.9% and 1.2%, respectively. A weaker US dollar supported prices, as did market expectations for another weekly decline in US inventories. Prices gained despite investor caution ahead of the key OPEC semi-annual meeting this Friday.               

Gold eked out a gain on Tuesday afternoon on a resurgent euro prompted by suggestions that Greece may be nearing a deal with its creditors. The gold price closed at US$1,193.57 per ounce, 0.20% higher than Monday’s close.