Market Drivers May 20, 2019
AUD pops post surprise center-right win
EU elections concern for the market
Nikkei 0.24% Dax -0.14%
Oil $63/bbl
Gold $1275/oz.
Europe and Asia:
EUR PPI 0.5% vs. 0.3%
North America:
No Data
It was a mild risk on opening in FX with commodity dollars dominating the leaderboard as the surprising center right win in Australia helped rally the markets and gap Aussie higher on Monday open.
AUDUSD rose to a high of .6928 in the wake of the win by the Liberal party which not only upset the front running Labor but was able to eke out a razor-thin majority in Parliament negating the need to share coalition power with smaller parties. The news brought some much-needed cheer to Aussie bulls which have been under almost relentless assault for the past week as the pair slipped first below the .7000 mark and then under .6900.
The grossly oversold cross saw some short covering at the open and could squeeze higher to the key .7000 figure if risk flows remain supportive this week. All eyes will now turn to RBA Governor Lowe’s speech on Wednesday with traders keen to see just how dovish he will be. The market has already priced in 50bp worth of rate cuts by the end of the year, but the RBA has been reluctant to commit to any easing so far despite the clear threats to the economy from the Sino-US trade rupture. Indeed even if Governor Lowe does hint at a rate cut in June he may assert a “one-and-done” posture of RBNZ which would be viewed as positive by the market.
While politics were having a positive impact on Australia, the story in Europe could be much more problematic. The upcoming European elections suggest that right wing anti-EU populist parties may score large gains this week, which would make consensus governing even more difficult to achieve as the main aim of these parties is to create an economic crisis within the region to force a break up of the union. The euro therefore remains under increasing selling pressure and a combination of populist gains along with a weak rebound in flash PMI data later in the week could send the pair through the 1.1100 support and open the way for a run on the key 1.1000 level as the week proceeds.
For now, the markets remain in contained ranges but given the wide array of event risk this week, the quiet is not likely to last.
