Aussie Flies; Dollar Dies

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Market Drivers June 7, 2017
AU GDP Beats
USDJPY probes 109.00
Nikkei 0.02% Dax -0.06%
Oil $48/bbl
Gold $1295/oz.

Europe and Asia:
AUD GDP 0.3% vs. 0.2%

North America:
No data

The dollar was under further pressure in Asian and morning European trade today as US yields continued to compress trading at their lowest levels since Donald Trump was elected. Meanwhile, the Aussie continued its upward ways taking out the .7550 barrier in morning London dealing on the back of better than expected GDP figures.

Australian GDP came in at 0.3% versus 0.2% expected which only a modest beat, but given the fact that market steeled itself for a possible negative reading, tonight’s data was taken with a sigh of relief. There is no doubt that growth in Australia is slowing, but a much more benign rate than many analysts feared.

Several analysts pointed out that despite the slowdown both household income and private non-mining business investment expanded indicating that demand remains relatively steady. Therefore despite the many challenges to Australian economy including geopolitics, weather and the unwinding of the mining boom, the country record long expansion remains on track and there was little in the data to suggest that the RBA would change its neutral stance anytime soon.

As a result, the Aussie remains the darling of the carry trade flows as US rates continue to decline. The US 10 year note is now trading at 2.15% and if the yield begins to inch towards the 2% handle the Aussie could climb towards .7700 on dollar weakness alone.

With no eco data on the docket today, bonds and equities will continue to dominate FX trade today and any further selloff in yields is likely to send USDJPY towards the 109.00 figure. The pair has already filled the gap left from Macron’s win in early May and the shorts will now try to press towards 108.50 support.

Boris Schlossberg
Managing Director

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