Daily FX Update, 6 May 2015 OVERNIGHT MARKET UPDATE:

·         The US non-manufacturing ISM rose to 57.8 in April from 56.5 in March. The details of the survey were relatively upbeat, with the new orders, employment and business activity components all improved, implying a robust result for Friday’s non-farm payroll report.

·         The US trade deficit widened sharply to US$51.4 billion in March from US$35.9 billion in February. Exports were up a marginal 0.9% m/m, but imports jumped 7.7% m/m. The deficit was also much wider than the US$45.2 billion assumed in the initial estimate of Q1 GDP growth, implying a further downgrade to Q1 GDP growth.  

·         The European Commission marginally upgraded its economic forecasts for 2015, raising GDP to +1.5% vs +1.3% and inflation to +0.1% vs -0.1%. These forecasts are similar to those published by the ECB and suggest that the period of negative inflation should prove temporary.  

·         In the currency market, the AUD rallied as markets see hurdles to further RBA cuts. The USD was on the back foot despite strength in the non-manufacturing ISM.

·         There was an aggressive selloff in fixed income markets overnight. US Treasuries extended their recent moves, with 10-year yields rising a further 4 bps to 2.19%, following the better than expected US non-manufacturing ISM data and oil prices continuing to improve, easing deflation concerns.   

·         US equities were dragged lower after a sharp sell-off in Chinese equities weighed on sentiment. The major US equity bourses closed 0.8%-1.6% lower.             

·         Crude oil gained, with WTI outperforming Brent. US WTI rose above USD60/bbl for the first time in five months, driven by Saudi Arabia raising its official selling prices to North America and Europe.                 

Gold hit a high of USD1,200/oz in early trading, finding support from higher energy prices. Gold is often used as an inflation-hedge and reviving oil prices has fuelled expectations that US inflation would start to pick up.