Snapshot

• DXY: Recent Asian currencies strength takes a pause but Bloomberg Asia Dollar Index now clearly in an uptrend and will be a contributor to further dollar weakness
• EUR/USD: May Sentix Investor Confidence index points to a stabilization in outlook compared to the panic in April
• USD/JPY: Kyodo News reports US has rejected Japan's full exemption from not only the 10% reciprocal tariff but also it's country specific tariff in recent negotiations
• AUD/USD & NZD/USD: The Antipodeans to follow in the direction of Yuan's recent strength
• Oil: Brent Crude holding above it's 58.40 low despite supply headwinds
• Gold: Hits 2 weeks high above 3387 as Gold welcomes back China after their labour holidays

US Dollar

Dxy extended higher off 98.901 (28 Apr low) to breach 23 Apr 99.939 reaction high. Market could stretch towards former low at 101.267 (3 Apr low), even up towards the 50 DMA~102.575, and the broader downtrend off 110.176 (13 Jan YTD high) will remain very much intact. We continue to see eventual renewed attempts on 97.921 (21 Apr low) after current recovery phase plays out. A 50-200 DMA death cross that was triggered on 16 Apr weighs and suggests longer term bears now taking a hold on market. Thus far price action remains trapped below 100.813 (23.6% retrace of the 110.176-97.921 fall). Back below 98.901 (28 Apr reaction low) will be initial hint that bears have resume control

Perhaps last week's robust Payrolls report gave him confidence, perhaps the recovering US equities markets did, who knows? Just when you thought that Trump will start paring back on his tariffs stance, he hits us with new tariffs. Trump announced 100% tariffs on movies produced outside the US. Details lacking at the moment, as it is unclear on whether the move will target production companies, foreign or American, producing films overseas. This muddled tariff approach continues to create unnecessary uncertainty in the markets

Almost 2 weeks of US equities rally have not driven up demand for the dollar. Almost one week of rising US 10 yr yields have not driven demand for the dollar. Instead, we saw a rip across the Asian currencies, with the Taiwanese Dollar, Malaysian Ringgit and Indonesian Rupiah chalking up gains of 7.88%, 3.94% and 2.69% against the dollar for the 28 Apr - 5 May period. This has led some market punditry to question if it was conveyed that FX rates will be part of the trade talk with Trump administration. In any case, with China back from their Labour Day holidays, we could see further selling of dollar and buying of Gold

Meantime, the Trump’s administration next move to push through trillions in tax cuts and hundreds of billions for increased spending on border and national defense runs into a temporary snag. House Republicans delayed the reconciliation markup amid tensions over cuts to Medicaid. Recall - The passing of the Senate’s budget resolution frees up Republican efforts to deliver $5.3 trillion in tax cuts over 10 years and raises the debt limit by $5 trillion in exchange for just $4 billion in spending cuts, far lesser than the $2 trillion spending cuts proposed by House Republicans. The Republican tax plan includes approximately $1.5 trillion in new tax cuts beyond the $3.8 trillion extension of the 2017 Trump tax cuts

The April dysfunctions in the bond market has already been warning that adding more to the already high levels of borrowing in the US could cause huge problems, expect the structural decline of the dollar to continue if the Trump administration manages to push this fiscal largesse through. Equities could also benefit in the short term but bonds should experience heightened volatility

Recently Released US Data

• S&P Global US Services PMI April Finalized 50.8 vs fc 51.2 vs prior 51.4
• S&P Global US Composite PMI April Finalized 50.6 vs fc 51.2 vs prior 51.2
• ISM Services Index April 51.6 vs fc 50.2 vs prior 50.8
• ISM Services Prices Paid April 65.1 vs fc 61.4 vs prior 60.9
• ISM Services New Orders 52.3 vs fc 50.3 vs prior 50.4
• ISM Services Employment 49.0 vs fc 47.1 vs prior 46.2

April’s Finalized S&P Global US Services and Composite PMI numbers were revised lower from it’s flash reading of 51.4 and 51.2 to 50.8 and 50.6

Meantime, ISM Services sector came in above consensus estimates, expanding to 51.6 vs forecast of 50.2 and prior 50.8. Uncertainty though remains a dominant theme, driving forward some spending eg, on cars ahead of tariffs. The prices paid component rose to 65.1, the highest level since November 2022 as vendors increase prices noting uncertainty around final costs due to tariffs. New orders rose to 52.3 but the employment index stayed in contraction at 49.0 as hiring freezes remain in place due to the uncertainty

Overall, the report suggests services sector is holding up. This is a report that will lend further support to the Fed to stand pat on rates

Meantime, with no deals done, with US-China still in a trade impasse and with Tariff Man still pushing out new tariffs like a magician pulling out bunnies from a hat, market will start asking if US economic data have peaked, with the negative impact from tariffs becoming more visible in the upcoming months data

US will be publishing it's March Trade Balance data later today

March Goods Trade deficit which was recently published widened significantly to -$162 billion as market front loaded imports to avoid the tariffs. Given the already reported March goods deficit of -$162 billion, and a typical service surplus of around $24-25 billion, the overall deficit is estimated to come out at -$137.2bn

Euro

EurUsd posted a 3 1/2-year highs at 1.1573 (21 Apr high) ahead of a 3-legged correction which may have terminated at 1.1266 (1 May low). Over 1.1425 (28 Apr lower high) to reignite bulls for renewed attempts on 1.1573. Above which paves the way for 28 Oct 21’ 1.1692 high next (also near 76.4% retrace of January 2021-September 2022, 1.2349-.9536. fall). Below 1.1266 delays but fresh bids could yet set in towards 1.1214 – 1.1144 (25 Sep 24’ former high – 3 Apr former high)

ECB GC member Stournaras said that the ECB is likely to continue with rate cuts. He reiterated what was conveyed by ECB President Lagarde, that it will be data dependent at each meeting. He added that uncertainty remains high and that in such circumstances "you don't take big steps or make big promnises"

Danske Bank forecasting the EurUsd to rise to 1.22 in 12 months time. They are betting on the Fed to resume the rate cuts and see this denting the dollar. They are forecasting 125bps of cuts by June 2026. Danske Bank expect the damage done to the US economy by the tariff policies will start showing up in data from May-July and by then, the Fed should also have more clarity on the final level of the China tariffs as well as other reciprocal tariffs

KKR & Co's Co-founder Henry Kravis is the latest to give Europe the thumbs up lately. He praised incoming German Chancellor Friedrich Merz for the country's defense and infrastructure bill and added that French President Emmanuel Macron and Italian PM Giorgia Meloni represent "European leadership that is going to get things done". KKR indicated they are looking outside of the US for investment oppurtunities and Europe is a "very interesting place to invest"

Recently Released Eurozone Data :

• May Sentix Investor Confidence -8.1 vs fc -11.5 vs prior -19.5

This was a significant improvement from April’s -19.5 and notably better than the forecast of -11.5. The Current Situation Index rose to -19.3, though still in negative territory, this was the most optimistic reading since August 2024. The Expectations Index jumped into positive territory at 3.8 from prior -15.8 in April, signalling renewed optimism about the economic outlook

Sentix attributed the rebound to the European Commission’s measured and clam response to the US trade actions, which helped restore investor confidence. Prior better than expected inflation data also reinforced expectations that ECB will continue it’s gradual rate cutting cycle

Though headline figure remains negative, signs are pointing to a stabilization in outlook compared to the panic in April

Eurozone will release it’s March PPI later today MoM fc -1.40% vs prior 0.20% and PPI YoY fc 2.50% vs prior 3.00% numbers

March PPI estimated to decline -1.40% compared to prior 0.20%. Lower energy costs should be a contributing factor and supply chain pressures have also largely normalized. However, core Eurozone inflation appears to remain sticky with recent figures posting 2.7% YoY above estimates for a 2.50% increase. Service inflation continues to be a primary driver of overall inflation

Japanese Yen

UsdJpy recovery off recent YTD low at 139.89 (22 Apr low) extended higher off 141.97 (29 Apr low) to break 144.56 (former 4 Apr low), touching 145.92 (2 May high) thus far. Stronger resistances lie above at 146.54 (11 Mar former low) – 50 DMA ~146.88 and while under there, risk is for the broader bear trend to reassert. Lapse back under 141.97 will suggest bears are back in force

With BOJ pushing back the timing for its 2% inflation target and slashing growth forecasts to 0.5% for this fiscal year due to global trade uncertainties, market sees the odds for a rate hike resumption being push further out. UsdJpy recovery bulls though have seen recent upside attempts rejected off 145.93 (2 May high) as market awaits the FOMC meeting and Fed Chair Powell’s guidance on where rates are headed. Most market analysts still expecting the Fed to eventually resume their rate cutting cycle as soon as they are reasonably sure that inflation will not spiral out of control. US OIS markets pricing in 78bps of cuts for 2025

BOJ also retains its commitment to raising borrowing costs if current economic uncertainties regarding the tariffs are cleared. Governor Ueda emphasized that “delaying the price target does not automatically mean a delay in rate hike”

Bloomberg Economics projects the BOJ raising rates at their July meeting and another two more hikes next year to bring target rate up to 1.25%

A Kyodo news report said that the US has rejected Japan's full exemption from not only the 10% reciprocal tariff but also it's country specific tariff in recent negotiations, US officials apparently told Japan's negotiator Ryosei Akazawa that the Trump administration only intends to put a cut in the 14% Japan specific tariff on the negotiating table. Previously, media reports indicated the two sides remained at odds on the key issue of auto tariffs. Nevertheless, Chief Negotiator Akazawa expressed hopes that the two sides will reach an agreement in June. Once the uncertainties over auto, steel and aluminium tariffs clears, market narratives could start shifting back to BOJ resuming their rate hiking cycle

Still if the US decides to play hardball with one of their closest allies, expect further market upheavals along the way

The recent strengthening of Asian currencies against the dollar spark talks of a currency appreciation for trade accord deal. If Chinese yuan which appears one of the most undervalued on a real effective exchange rate basis takes the lead to allow Yuan to appreciate further, there is room for competing currencies like the JPY to further appreciate as well

On Thursday BOJ will release minutes of its March meeting. Japanese data of interest this week will be March Household Spending data which will be released this Thursday. Japanese markets are closed Monday and Tuesday for public holidays

Australian and New Zealand Dollar

AudUsd rallied sharrply off YTD low at .5915 (9 Apr low), breaking above the 50 DMA~.6286 decisively and extending gains to breach the confluence of resistances in the .6389-.6391-.6409 area and the 50% retrace of the .6942-.5915 fall at .6428. Traded to a fresh YTD high at .6494 (5 May high / just above the 200 DMA~.6459) thus far and is currently attempting to sustain a decisive clearance of the 200 DMA. The recent move above .6409 suggests AudUsd is hammering out a bottoming process and bulls should aim to press towards .6550 (25 Nov 24' lower high/also 61.8% retrace) next. Back below the 50 DMA~.6303 needed to dampen current bullish momentum.

PM Albanese's landslide victory over the weekend reinforces political stability and provided Aud a near term boost.

Looking ahead, market still waiting for further details on the development over the US-China trade negotiations saga. Market talk that they will talk have already gotten markets going but we will need them to start talking to sustain bullish vibes. Meantime, with talks on Asian currency appreciation in exchange for trade deals with the US, we are also seeing the Chinese Yuan strengthen, with USDCNH moving below it's 200 DMA. This could also help buoy AUD as a yuan proxy

All eyes will also be on the coming Fed meeting, where Powell will likely defy Trump again and keep rates unchanged. Market will be scrutinising his speech to see if his stance towards rate cuts have softened as risks to the economy from the tariffs mounts. The Fed will have to weigh this against the inflationary impact from the tariffs. US OIS markets currently pricing in about 80bps cuts for the year

Latest ISM reports suggest that the Fed will stand pat on rates but economists will be wondering if US economic data have peaked, with the negative impact from tariffs becoming more visible in the upcoming months data

Meantime, yesterday’s April Melbourne Institute Inflation data came in mainly above consensus estimates (3.3% YoY vs prior 2.8% / 0.6% MoM vs prior 0.7% / Trimmed Mean 0.4% vs prior 0.2%). This, along with firm Australia March CPI data and firm 1^st Quarter PPI data and April’s rising consumer inflation expectations (4.2% from March 3.6%) could suggest that current expectations of RBA rate cuts ~ OIS markets pricing in 104bps of cuts for 2025, may be a tad optimistic

Recently Released Australia Data :

• March Household Spending MoM -0.3% vs fc 0.20% vs prior 0.30% (Revised)
• March Household Spending YoY 3.5% vs fc 3.90% vs 3.60% (Revised)
• March Buildings Approval MoM -8.8% vs fc -1.50% vs prior -0.20% (Revised)
• March Private Sector Houses MoM -4.5% vs prior 1.1% (Revised)

Australia March Household Spending data came in weaker than expected with MoM data coming in negative at -0.3%. This marks the first monthly drop after five consecutive months of increases. YoY data at 3.5% was also below forecast for a 3.90% rise. The downturn was broad based with spending falling in six out of nine categories

This suggests recent rate cuts and tax handouts have yet to translate into stronger consumption. With household spending accounting for over half of GDP, this softness could reinforce the RBA rate cut later this month

NzdUsd found support at .5894 (1 May low / just above the 200 DMA ~.5882) to stem recent corrective pullback off it’s 22 Apr .6029 YTD high. Any overshoot below the 200 DMA should see bids coming in near former highs at .5831-.5853 (18 Mar – 3 Apr highs). Above .6038 (7 Nov 24' minor lower reaction high/also 61.8% retrace of .6379-.5486 fall) opens .6120 (11 Oct 24 minor lower high) next

New Zealand’s first quarter employment data will be released on Wednesday. Market estimates the jobless rate to rise to 5.3% in the first quarter compared to 5.1% in the final quarter of last year. This could reinforce expectations for further monetary easing by the RBNZ. Markets have fully priced in a cut for RBNZ meeting later this month. NZ OIS markets currently expecting about 76 bps of cuts for 2025

Recently Released NZ Data :

• ANZ Commodity Price MOM April 0.0% vs prior -0.4%

ANZ Commodity Price MoM was flat reflecting offsetting forces, resilience in dairy and meat versus structural declines in forestry and aluminium. A resolution to the US-China trade tensions could alleviate aluminium and forestry pressures but this remains unlikely in the next couple of months

Oil and Other Commodities

Brent Crude Oil nearly full retrace April's 58.40-68.65 recovery rally. Over 62.72 (2 May high) needed to ease selling pressure while only reclaiming 68.65 (23 Apr high) and the 50 DMA~68.94 suggests a turnaround. Below 58.40 risks fresh 4 year lows towards 57.42 (13 Jan 21 former high)

Oil prices tumbled after OPEC+ on Saturday agreed to ramp up output in June for a second straight month.

Many analysts are seeing Saudi Arabia’s willingness to push for an increase in OPEC+ output despite falling prices, as a move to punish OPEC+ members like Iraq and Kazakhstan who have repeatedly exceeded their production quotas. Some analysts also see this as a way for Saudi Arabia to defend and potentially regain market share that OPEC+ has lost to non-OPEC producers, particularly US shale oil companies, who generally need oil prices above $60 per barrel to remain profitable and maintain or expand their output

As such, oil bulls could continue to face headwinds from the supply side

Goldman Sachs now expects a final OPEC+ production increase of 410,000 bbl/day in July versus 140,000 bbl/per day projected previously. It forecasts Brent Crude to average $60/bbl for 2025 and $56/bbl for 2026 versus earlier expectations of $63/bbl and $58/bbl respectively

Barclays also lowered their oil forecast and now expects Brent Crude to average $66/bbl for 2025 and $60/bbl for 2026 compared to $70bbl and $62/bbl respectively

The recent sharp weakening of the dollar against Asian currencies raise prospects of potential US trade deals as the currency appreciation for trade accord narrative took hold. If true, this diminishes the dire outlook priced in global demand from the tariffs debacle and could revive risk appetite. As it is, the recent 58.40 floor in Brent Crude remains intact despite news of OPEC+ increasing output, that in itself should give Oil bulls some optimism despite all the dire forecasts

Gold posted a record high at 3500.10 (22 Apr high) ahead of a much-needed corrective pullback. Downside thus far halted above the 3193.74 - 3167.84 (14 Apr low - 3 Apr former high) support zone. We see scope for market to renew up climbs to target 3547.88 (1.764x ,2832.71-3167.84 off 2956.71 projection) next.

The first consecutive two weekly declines for the year have helped unwind the overstretched technicals. Gold volatility has also eased from above 29 to under 22. Last Friday’s firm US payrolls numbers and recent ISM report likely push back hopes for a Fed cut, with markets now eyeing the next likely reduction to come in July.

However, bears will likely remain reticent about pushing Gold lower. There is the possibility that US economic data have peaked, with the negative impact from tariffs becoming more visible in the upcoming months data. If we see a downturn in the labour data it could finally tilt the Fed towards cutting rates to support employment. Non-interest-bearing Gold will tend to benefit

Any negotiations between US-China is also unlikely to be resolved in a matter of weeks, with US Treasury Secretary Bessent saying months will be needed, undoubtedly with twists and turns along the way to heighten uncertainty. Latest Kyodo news suggest the US administration may be playing hardball with their close ally Japan in negotiations and that could trigger another safe haven flow

As mentioned during this morning's FX report, we were expecting a resumption of Gold buying in Asian hours after China's return back to the markets from their labour holidays, as investors focus on a weakening dollar against Asian currencies as signs for potential US trade deals . Gold push back above 3387 to hit a 2 weeks high in the Asian session

The longer-term trend bull drivers for Gold like the continued Central Banks buying and the Trump's administration agenda to extend and expand on the Trump's Tax Cuts and Jobs Act (TCJA) which looks set to widen the fiscal deficit and bolster the case for a structural weaker dollar, should keep Gold well bided.

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