Nvidia’s earnings offer markets a break from debt ceiling chatters: US dollar, NZD/USD, AUD/USD

Market Recap

Further optimism were laid out from policymakers on the US debt ceiling negotiations overnight, but market sentiments seem largely unmoved with Wall Street ending the day in the red (DJIA -0.77%; S&P 500 -0.73%; Nasdaq -0.61%). As the early-June deadline ticks closer, only a concrete resolution may provide the much-needed conviction for markets rather than verbal reassurances, with the lingering risks of a continued impasse still keeping sentiments on a cautious tone.

On the economic calendar, the softer tone in the Federal Open Market Committee (FOMC) minutes reinforced views for a potential rate pause from the Federal Reserve (Fed) in June, but an upside inflation surprise in the UK seems to keep hawkish bets on the table. Rate cuts remain off the table this year as well, which saw rate expectations coming more to terms with a more prolonged rate pause, versus the 50 basis-point cuts priced at the start of the week. US Treasury yields continue with their upward moves, reflecting the still-hawkish pricing in rates, which provides an uplift for the US dollar.

Nvidia’s after-market earnings managed to offer markets a break from all the debt ceiling chatters, with its share price up 24% in after-hours trading. Despite a lot of future potential growth being priced into its lofty valuation, its outlook on surging demand for its artificial intelligence (AI) chips has been much more optimistic than expected, with its second-quarter revenue forecast coming in more than 50% above Wall Street’s estimates. The company has been a pick-and-shovel play in the AI boom, with the outlook to ramp up supplies to meet chips demand likely to see earnings being supported through the rest of the year.

The US dollar found its way higher once more, breaking above the 103.12 level overnight, where the upper edge of its Ichimoku cloud stands. The new higher high since the start of the month continues to give it a near-term bullish take, with its March 2023 high potentially on watch next for a retest, where its 200-day moving average (MA) resides. Any subsequent move above its March 2023 high may be significant in pointing to a break of a potential double-bottom pattern.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.23%, ASX -0.77% and KOSPI -0.30% at the time of writing. Nvidia’s after-market earnings failed to drive much of a move higher across the region, although the Nasdaq futures are seeing a 1.3% gain. Chinese equities continue to deliver a weak showing overnight, with the Nasdaq Golden Dragon China Index down 2.2%. Its formation of a new lower low reinforces the prevailing downward trend since the start of the year, which could keep its performance lower-for-longer until growth data are able to provide more conviction for its economic recovery.

A dovish takeaway from the Reserve Bank of New Zealand (RBNZ) yesterday translated to a sharp move lower for the NZD, which saw the NZD/USD back to retest its March 2023 low. A breakdown of its current consolidation pattern could leave the 0.575 level on watch next based on the range projection.

On another note, the AUD/USD has broken down to its lowest level in six months, after failing to cross its Ichimoku cloud resistance. Given the extent of the recent down move, selling on bounce could be the lower-risk option here. The overall trend remains downward bias for now, which could leave the 0.640 level on watch as the next line of support.

Wednesday: DJIA -0.77%; S&P 500 -0.73%; Nasdaq -0.61%, DAX -1.92%, FTSE -1.75%