AUD: Guided by global trade scenario - Westpac

According to Sean Callow, Research Analyst at Westpac, wary optimism over the global trade outlook seems to have helped stabilize risk sentiment, with the MSCI World equity index on track for a 4th straight day of gains at time of writing.

Key Quotes

“The rise in the likes of AUD/JPY and S&P 500 futures on Monday’s open indicated a willingness to bet that the weekend’s US missile strikes on Syria would be an isolated event as in 2017. This optimism has been rewarded so far this week.”

“Some investors will be hoping that the eventual US action on Chinese imports in punishment for China’s alleged “forced transfer of U.S. technology and intellectual property” will be tempered significantly by a strong pushback by business and members of Congress. Note that while the US Trade Representative has proposed a list of 1300 products that could be subject to tariffs, these “will undergo further review in a public notice and comment process, including a hearing.”

“This hearing is not until 15 May, with a post-hearing rebuttal period ending 22 May. Only after that is the final determination made. It appears that the weight of money right now is towards worst case scenarios not being realised. This has helped markets return their focus to what is still an upbeat global economic backdrop. The IMF this week projected a swift 3.9% global growth pace for both 2018 and 2019.”

“Such a prospect – and a bounce in key commodity prices - has seen AUD strongest of the G10 currencies over the past week, albeit well within familiar ranges. Australia’s domestic story was not really altered by the below consensus jobs data for March. Annual job creation has eased back to 3%, but as the chart shows, this is still very strong in historical context.”

“Probably more important for AUD is Tue’s Q1 CPI data. The 0.5%qtr, 1.9%yr reading Westpac expects should not rattle the patient RBA. But there is always the risk of a surprise, as we saw dramatically 2 years ago when the shock -0.2% fall in prices in Q1 16 set up 2 rate cuts.”