Markets Overview

  • ASX SPI 200 futures up 0.3% to 7,766.00
  • Dow Average up 0.8% to 39,387.76
  • Aussie up 0.6% to 0.6620 per US$
  • US 10-year yield fell 3.9bps to 4.4551%
  • Australia 3-year bond yield rose 4.9 bps to 3.99%
  • Australia 10-year bond yield rose 5.5 bps to 4.35%
  • Gold spot up 1.6% to $2,345.98
  • Brent futures up 0.7% to $84.16/bbl

Economic Events

Asian stocks were primed for gains Friday after an upbeat day on Wall Street following jobs data that supported the case for Federal Reserve rate cuts this year.

Equity futures for Japan, Australia and Hong Kong all rose after the S&P 500 climbed 0.5% and traded less than 1% away from its all-time high. The Nasdaq 100 index rose 0.2%.

Treasuries also advanced, unwinding selling from the prior session, to place the 10-year yield four basis points lower at 4.45%. A $25 billion sale of 30-year bonds saw good demand, underscoring investor support for US debt.

Initial applications for US unemployment benefits increased last week to the highest level since August, topping estimates, with cooling in the jobs market supporting the case for interest rate cuts. Fed Bank of San Francisco President Mary Daly said rates are currently restraining the economy, but it may take “more time” to return inflation to their goal.

Lower yields weakened the dollar, but the greenback’s move failed to lift the yen. The Japanese currency traded flat Thursday and was little changed in early Friday trading at around 155 per dollar.

Instead, emerging market currencies were among the beneficiaries of a weaker dollar. The pound also rose, despite growing confidence the Bank of England may soon begin loosening policy.

Data set for release in Asia Friday includes household spending and current account balance figures for Japan, industrial output for India, and the first-quarter current account balance for China. New loans and money supply data for China may also be released as early as today.

Oil gained for a second day on Thursday as key technical levels provided a floor for losses while investors digested a mixed US inventories report. Gold jumped more than 1% to $2,346 per ounce on Thursday.

Other News

Investors should buy the Australian dollar versus currencies like euro and Swiss franc, a strategy that benefits from a tighter Reserve Bank policy and minimizes risks associated with the greenback.

That’s the view of UBS Group AG, which says the Aussie will rally against these exchange rates as sticky inflation keeps the RBA from loosening its policy sooner than other Group-of-10 peers. Bank of America says an expected rebound in China’s economy is another reason to buy the Australian dollar versus other currencies.

These trades put Aussie bulls in a sweet spot as they nearly remove the biggest wild card that’s been whipsawing global foreign-exchange markets this year — the US dollar. While the Australian currency along with most of its G-10 peers has weakened against the greenback of late, it’s up versus nearly all other major exchange rates tracked by Bloomberg this quarter.

“Folks are turning to relative value trades as they are unsure of the US dollar’s path ahead,” said Alex Loo, a macro strategist at Toronto-Dominion Bank in Singapore. “Rates differential expectations will keep Australian dollar supported against the other crosses.”

The Aussie’s fortunes diverged from other G-10 currencies as unexpectedly strong first-quarter inflation, rising home prices and resilient labor data prompted traders to push back RBA easing bets to next year, according to data compiled by Bloomberg.

Meanwhile, expectations are growing the European Central Bank will ease policy in June, with the Bank of England, Swiss National Bank and Bank of Canada following in subsequent months, the data show.

“With the first RBA cut not coming until February of next year, well after many other G-10 central banks, we see AUD dips as a buying opportunity, especially on the crosses,” said Vassili Serebriakov, a currency and macro strategist at UBS in New York.

Australia’s status as the world’s biggest exporter of iron ore is also helping its currency. The commodity posted double-digit gains this quarter as Chinese policy makers vowed to help local governments revamp run-down buildings and upgrade infrastructure. Warming ties between the two nations are another plus.

“We see multiple tailwinds for the Australian dollar, including green shoots in the Chinese economy,” said Oliver Levingston, a currency strategist at BofA in Sydney. The bank also favors the Aussie over Swiss franc, on expectation the latter will become the chief funding currency for carry trades after suspected intervention by Japanese officials to support the yen, he said.

The Aussie may be close to unwinding its advance against some currencies. Westpac Banking Corp. recommends betting the Aussie will underperform the New Zealand dollar after the currency pair hit an 11-month high this week.

“This is a short-term tactical trade, taking advantage of the technically stretched state of the cross,” said Richard Franulovich, head of currency strategy at the bank.

Commonwealth Bank of Australia expects Aussie currency crosses to remain soft in the next few months due to a weak global economy, before recovering. “We forecast most of the major crosses will lift from the second half of 2024 as central banks begin their rate cutting cycles and the global economic outlook improves,” said Carol Kong, a currency strategist at the bank.