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[MARKET ANALYSIS] DXY flat into key data, AUD lags post-RBA, JPY resides back above 157.00

The DXY is holding steady ahead of key US data releases, indicating market participants are in wait-and-see mode, which could see the index push higher if energy prices strengthen.

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Israeli cities and towns are to prepare for the possibility of the conflict resuming, Al Hadath reports citing Yedioth Ahronoth

US Ambassador Waltz says US and Gulf Arab nations are drafting a UN Security Council resolution to condemn Iran for blocking the Strait of Hormuz

[MARKET ANALYSIS] DXY flat into key data, AUD lags post-RBA, JPY resides back above 157.00

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[MARKET ANALYSIS] Crude pares Monday's gains, to the benefit of XAU

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  • DXY is steady and trades within a narrow 98.40 to 98.57 range, with geopolitical newsflow overnight relatively light and as markets await the US data docket later. The index currently trades in close proximity to its 21-DMA (98.50), 100-DMA (98.46) and 200-DMA (98.55). ING opines that near-term strength in energy prices should see the DXY head back towards the 99.00/99.50 area this week. No doubt attention ahead will be on any geopolitical developments, but domestically, traders will also eye US ISM Services, PMI Finals, JOLTS and a couple of Fed speakers.
  • Antipodeans are diverging this morning, with the Kiwi marginally topping the G10 pile whilst the Aussie lags. This is largely a function of a weaker AUD, after the RBA’s decision to hike its policy rate by 25bps (as expected). The accompanying statement was also net-hawkish, having suggested that second-round effects are beginning to emerge. In an immediate reaction, AUD/USD jumped higher to make a session peak at 0.7171 (vs trough 0.7135), before then gradually trundling lower soon after. The move lower is potentially a function of traders now taking out bets of future tightening, after three consecutive hikes. Particularly as in the presser, the Governor outlined they now have the policy space to wait and see. Markets currently do not assign much probability to a hike in June, before fully pricing in a hike by September. MUFG states that it is “unlikely” the RBA will hike in June, but still sees the AUD to perform strongly in the near-term, “unless there is a bigger correction lower for risk assets in response to the Middle East conflict.”
  • JPY is currently flat this morning, in what has been an uneventful session so far. No aggressive moves lower in the USD/JPY, with officials seemingly taking a breather after a string of potential interventions in the past few sessions. Nonetheless, markets remain on intervention watch, given the holiday-thinned conditions – but some focus perhaps will be on the US NFP report, where Japanese officials may look to exacerbate a favourable move post-data. A tactic used previously by the MoF. The pair currently resides within a 157.07-157.28 range, and in close proximity to its 100-DMA (157.31).
  • Interestingly, Japan has only two remaining windows for three-day yen intervention sessions by November under IMF guidelines, if it wishes to retain its freely floating exchange rate status, WSJ reports. Each three-day operation counts as a single market intervention, the report explains. A Japanese finance ministry official cited the IMF rule on Monday, following a JPY surge last week amid reported intervention.
  • CHF is near enough unchanged vs the USD, and incrementally firmer against the EUR; EUR/CHF currently hovers just above its 50-DMA at 0.91554. Some modest pressure was seen in the Swiss Franc after the region’s April inflation report, whereby the M/M metric increased by less than expected, though the Y/Y figure doubled amidst the Iranian war.
Context

The AUD's weakness post-RBA suggests traders are recalibrating their expectations for future tightening, pushed lower by the Governor's hints at a wait-and-see approach, contrary to initial reactions. Meanwhile, the JPY remains stable, but with intervention concerns lingering, especially as the market anticipates the US employment figures, which could prompt a significant move in USD/JPY.

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