Australian dollar eyes BRICS summit after mixed PMI data

Thursday’s Asia-Pacific outlook

Asia-Pacific markets may fall today after traders went risk-off overnight during the New York trading session. Recessionary fears were brought back into the fold after Federal Reserve Chair Jerome Powell clarified that rate hikes may cause a recession. Mr. Powell, speaking before Congress, said, “it’s certainly a possibility.” US stock indexes responded by trimming early gains and finishing the day with losses. The risk-sensitive Australian dollar fell against the US dollar. This morning, Australia’s global manufacturing PMI flash index rose to 55.8 for June, up from 55.7 in May, according to S&P Global. The services sector component fell to 52.6 from 53.2.

It was the euro, and not the dollar, that benefited from the risk-off flows in the currency market. The Greenback’s strength was stifled by strong bond-buying across the short-end of the Treasury curve, with yields broadly falling across maturities as well. The USD-sensitive 5-year Treasury rate fell to its lowest level since June 10. Bond investors’ appetite extended throughout bond markets in the APAC region, with government bond yields falling in Australia and New Zealand.

Energy markets were another victim of the increased confidence in an impending recession. WTI crude prices fell nearly 4% to the lowest levels traded at since early May. The Fed’s signaling over the possibility of a recession benefits their policy in this regard, as lower oil prices are likely to help cool inflationary pressures. President Joe Biden called on Congress to suspend the federal gasoline tax through September. The US President is under growing political pressure with gasoline prices at or near record highs across much of the US.

Elsewhere, the BRICS Summit is set to kick off in its virtual format. The leaders of Brazil, Russia, India, China, and South Africa will discuss economic and political cooperation, among other matters. It will also be the first time Russian President Vladimir Putin publicly joins other leaders since the invasion of Ukraine. There may also be some talk about further shifting away from the US dollar system.

Notable events for June 22:

• Japan – Foreign Bond Investment (18/June)
• Japan – Jibun Bank Manufacturing PMI Flash (June)
• Thailand – Balance of Trade (May)
• Philippines – Interest Rate Decision
• Indonesia – Interest Rate Decision

AUD/USD technical forecast

AUD/USD reversed its gains from earlier this week after prices fell close to trendline support before trimming some losses. That trendline may continue to underpin prices. The Relative Strength Index (RSI) and MACD oscillators remain weak, offering little sign of a turnaround in momentum in the short term. To the upside, the psychologically imposing 0.7000 level may provide resistance if prices turn higher.

AUD/USD daily chart

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.