AUD/USD, ASX 200 Analysis: Morning Brief - 25th May 2023

Market summary

• The USD was the strongest major following slightly hawkish FOMC minutes which suggested further hikes depends on incoming data (AUD/USD hit a YTD low)
  • Participants agreed that inflation was unacceptably high and declining slower than expected
  • Fed staff continue to forecast a mild recession later this year, followed by a modestly-paced recovery
  • Some members stressed it was ‘crucial’ the statement not signal cuts this year or rule out further hikes
  • Some members commented that additional policy firming may be warranted at future meetings, others suggested it may not be needed

   

• The NZD was sharply lower after the RBNZ hiked rates by 25bp yesterday and signalled it could be their last hike of the cycle (their 12th consecutive cycle took rates to 5.5%)
• Citing lower demand and a government budget that was not expected to be as inflationary as quickly as feared saw them retain their OCR forecast for a peak of 5.5%
• NZ retail sales was also softer than expected, contracting -4.1% q/q (-0.6% expected) and -4.1% y/y (-4% expected)
• EUR/USD fell to a 2-month low after German business sentiment continued to deteriorate, with IFO breaking a 6-month rise and finally tracking the ZEW lower
• GBP was initially stronger following another set of hot CPI numbers, although producer prices continue to soften so it is likely a matter of time before this feeds through to consumer prices
• Deflationary forces continue to appear across Asia with North Korean producer prices (a key export economy) falling to 1.7% y/y and -0.1% m/m
• Wall Street finished lower for a fourth day as debt-ceiling negotiation failed to produce any results
• Fitch placed the US on a 'AAA' ratings watch due to the risk of not raising the debt ceiling, which basically means they will be downgraded if a deal is not achieved

ASX 200 at a glance

• The ASX closed lower for a third day, in line with yesterday’s bearish bias
• Wall Street and SPI futures point to a weak open
• 7200 and 7165 are potential support levels today
• Financial stocks could face pressure, whilst energy stocks may be able to outperform (but not be overly strong) due to supported oil prices

AUD/USD daily chart:

A stronger US dollar, weaker commodities and a dovish RBNZ hike weighed on the Australian dollar, breaking it out of its 1-week range to a YTD low. Bears could consider swing trades below the 0.6600 area with 0.6500, 0.6440 (61.8% projection) and 0.6400 handle providing potential target area.

Events in focus (AEDT):

• No major economic events are schedule for today’s Asian session
• 22:30 – US Q1 GDP, jobless claims

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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