Forex today: was risk-on from the off supporting the Aussie

After a positive Friday's nonfarm payrolls as a backdrop to Monday's markets, traders shrugged off the imminent risks of a hot trade war between the US and its closest allies. Forex today was risk-on from the off that supported the Aussie on a tear to above 0.7660 and the highest levels since last April and underpinning the benchmarks on Wall Street with the Nasdaq closing at a record high.

The US 10yr treasury yield climbed from 2.90% to 2.94% after a subdued session in European trade while the 2yr yields rose from 2.48% to 2.51%, leaving the Fed fund futures yields bid as well, factoring in a rate hike in for June and at least one other by the year-end. DXY ranged on a northerly trajectory in the US between 93.6640-94.1950 but closed -0.13% on the day. 

Currency action

As for other currencies, EUR/USD was extending the recovery in the wake of the formation of the Italian Government. The pair rallied through to a pre-US session high of 1.1744, stalling there ahead of the 21-DMA at 1.1770. However, the USD rallied once US yields picked up, sending the pair down to 1.1675 before it recovered back to 1.1695. Having closed above the 10-DMA for first time since April 18 on Friday, GBP/USD started well in European trade due to initial dollar weakness. The pound climbed to an 11-day high with a few pips below the key 1.3400 level. UK data was a positive against a backdrop of the manufacturing data that arrived positive last week. the UK construction PMI beat was well received at 52.5 vs 52.0 consensus. In NY, sterling was hit on renewed dollar strength, sending the pair down to 1.3294. The pair closed at 1.3325, just below key 10-DMA resistance (1.3328). USD/JPY maintained its bullish form on the back of the yield spread underpinning the upside as the BoJ trims its QQE purchases. the bulls have been stuck around the key Kijun level around 109.76 as investors shrugged off the threat of imminent trade wars and instead concentrate on a June hike from the Fed and upbeat assessments that increase the likelihood of at least two rate hikes for 2018. Ahead of the Fed, BOJ and Trump-Kim historic summit, traders eyes are on the 200-D SMA at 110.18. AUD/USD was in a short squeeze to start the day in European trade right up to 0.7650, (a six-week), following the Aussie retail sales beat of 0.4% vs 0.2% expected. Copper prices were strong again, rallying to 3.1404 from 3.0091. 0.7665 capped the bulls just below the cloud base and when the dollar picked up the bid, the pair dropped to 0.7640 before a little bounce back for a 0.7655 close ahead of the RBA even in Asia. 

Key notes from the US session

Funda-FX wrap: markets shrugged off trade war risks

Key events ahead

Analysts at Westpac explained the outlook for forthcoming events as follows: "Forecasts for Australia’s Q1 GDP report tomorrow will be finalized after 11:30am Syd/9:30am Sing/HK when we see the Q1 balance of payments and public finance reports. Net exports are expected to be the key swing variable in overall GDP from Q4 2017 (subtracting -0.5 percentage points) to Q1 2018 (adding 0.5ppts). This will be the market focus, rather than Australia’s current account deficit, which should narrow from Q4’s hefty –A$14bn.

Public demand is a key growth driver at the moment, especially on infrastructure and health. We look for a 1.0%qtr rise in Q1, similar to Q4. Ahead of these releases, Westpac’s GDP forecast is 0.9%qtr, 2.8%yr, but with clear upside risks after the strong company profits and inventory data yesterday.

Markets imply no chance of a change in the RBA cash rate again this month, holding at 1.5% in the statement due at 2:30pm Syd/12:30pm Sing/HK. 

Asia’s data calendar is second tier, with some interest in the May China services sector survey, with consensus a  decent 52.9.

The twice-monthly Global Dairy Trade auction takes place in London. Little change is expected in prices, while volumes are seasonally low.

In the US, we will see April data on job openings, quit rates etc. Fed economists will look at this closely but it tends not to move markets. Also due is the May non-manufacturing business survey from the Institute for Supply Management. This was a healthy 56.8 in Apr and regional surveys suggest it could strengthen further."