Asia Day Ahead: US CPI prompts risk-on moves

Asia Open

The Asian session looks set for a positive open, with Nikkei +0.54%, ASX +1.31% and KOSPI +1.45% at the time of writing. Following four straight months of upside surprises in US consumer prices, markets were relieved to see a more tamed read for April, which gave reassurances that US inflation is still on a downward trend. Along with a far weaker read in US retail sales, the overall data were perceived to offer room for the Federal Reserve (Fed) to consider earlier rate cuts, with market expectations leaning more firmly for easing to kickstart in September this year.

Wall Street took it as a go-ahead to hit fresh record highs, with the US dollar dipping to a one-month low. US Treasury yields were dragged lower as well, with the US two-year yields falling 9 basis point (bp) while the 10-year yields plunged close to 10 bp to touch 4.34%. These will be very much well-received for risk environment across the region, with clarity on US inflation risks allowing sentiments to bask in optimism before the next set of inflation data comes at the end of the month.

Economic data to digest: Japan’s GDP

This morning saw a far weaker read in Japan’s 1Q gross domestic product (GDP), with growth contracting by 2.0% versus the -1.5% expected. Private consumption was weaker than expected, coming in at -0.7% versus the -0.2% expected. But given some one-off effects from production disruptions in the automobile space and the New Year’s Day earthquake, expectations are for some recovery into the next quarter.

The data may reinforce the Bank of Japan (BoJ)’s decision to take on a more gradual pace of policy normalisation, given current lacklustre economic conditions. The next meeting in June is expected to see policy rate unchanged, but with a rate move potentially in the July or September meeting.

What to watch: AUD/USD break above consolidation range

After trading within a broad range since January this year, the AUD/USD managed to see an upward break, with its moving average convergence/divergence (MACD) edging higher into positive territory and its relative strength index (RSI) trading above its mid-line leaving buyers in greater control. The bounce off its daily Ichimoku Cloud last week also validated the 0.656 level as a key support to watch. On the upside, immediate resistance may be at the 0.673 level, with any successful break above the level paving the way for the pair to retest the December 2023 high at the 0.687 level next.