Markets Overview

  • ASX SPI 200 futures up 0.2% to 7,768.00
  • Dow Average little changed at 39,344.79
  • Aussie down 0.2% to 0.6737 per US$
  • US 10-year yield little changed at 4.2803%
  • Australia 3-year bond yield fell 3.9 bps to 4.12%
  • Australia 10-year bond yield fell 4.4 bps to 4.36%
  • Gold spot down 1.4% to $2,358.84
  • Brent futures down 1.0% to $85.68/bbl

Economic Events

  • 10:30: (AU) July Westpac Consumer Conf SA MoM, prior 1.7%
  • 10:30: (AU) July Westpac Consumer Conf Index, prior 83.6
  • 11:30: (AU) June NAB Business Conditions, prior 6
  • 11:30: (AU) June NAB Business Confidence, prior -3

Asian stocks are poised for a mixed start as traders tread cautiously ahead of Jerome Powell’s testimony to Congress and the start of the US earnings season.

Equity futures in Australia and Japan indicate small gains when trading begins Tuesday while contracts in Hong Kong and China slipped. US futures were little changed in early trading after the S&P 500 closed 0.1% higher to notch its 35th record this year. The dollar was steady.

Traders will be focused on Powell’s testimony beginning Tuesday for guidance on the Federal Reserve’s outlook. He faces pressure from lawmakers growing impatient for rate cuts and others who are unhappy with the Fed’s latest plan to boost capital requirements for Wall Street lenders. Markets are pricing the chance of two rate cuts this year, with a roughly 70% chance of the first in September, according to swaps data compiled by Bloomberg.

Shorter-term Treasuries underperformed longer ones even as US consumers’ near-term inflation expectations declined for the second straight month in June. US inflation data due Thursday will also be key, with economists expecting the core gauge to rise 0.2% for a second month. That would mark the smallest back-to-back gains since August.

Bond markets appear to be beginning the back half of 2024 with a long bias, as economic data weakens and we approach rate cuts in the fall, according to Thomas Tzitzouris at Strategas. Despite the long positioning, there are preliminary signs of shorts coming back, he noted.

Other News

Australia and New Zealand’s currencies are poised to outperform global peers as their central banks delay cutting rates, shielding the pair from rising political risks.

The typically risk-sensitive currencies were the top performers among a Group-of-10 peers last quarter, both climbing around 2% against the greenback despite a surge in volatility in global markets. Australia’s dollar closed 0.3% higher at 67.49 US cents on Friday, while New Zealand’s finished 0.5% stronger at 61.45 cents.

Rate hike bias from both the Reserve Bank of Australia and the Reserve Bank of New Zealand suggests the run may continue, offering protection from a strengthening greenback. The dollar surged 2% last quarter as traders shifted bets on Federal Reserve rate cuts, surprise elections in Europe and the outcome of a recent US presidential debate.

“Asia Pacific is the new haven trade,” said Nick Twidale, chief market analyst at ATFX, especially for the Aussie as the RBA has signaled rates could go either way while “every other central bank is saying they’re going down.” Twidale sees the Aussie testing 70 cents, and the kiwi at 62 cents in the coming months.

Traders have priced a just-under even chance that the RBA will increase interest rates at its next meeting following stronger-than-forecasted inflation in May. Meanwhile, the RBNZ is set to deliver its policy decision this week, as the central bank focuses on bringing inflation back within target even with an economy that has flipped in and out of recession.

Global currency volatility has steadily climbed since mid-May. The greenback has benefited from a global bond rout, sparked by France’s snap legislative elections that risked driving the country deeper into debt. Speculation that Trump may win the November US election also hit Treasuries as his inflationary policies pushed back bets on Fed easing.

“Aussie and kiwi could’ve done even better were it not for political uncertainty in Europe and the US,” said Carol Kong, a strategist at Commonwealth Bank of Australia. “The prospect of another RBA rate hike has been a tailwind for the Australian dollar and can potentially push it further up if a hike materializes.”

To be sure, the outperformance of both currencies may only be short lived. The greenback can reassert itself as markets position for a Trump victory, according to a note from Brown Brothers Harriman, while the macro outlook may recalibrate as political risks in Europe start to wane, according to Westpac Banking Corp.

“Short term yes; long term no,” said Martin Whetton, head of markets strategy at Westpac, referring to the prospect of Aussie and kiwi strength. “Short term, it is really quite marginal versus the dollar.”