The Australian Dollar fell more than 2 cents or 2.4% as the Reserve Bank of Australia decided to lower rates to 1.75%, USD strength returning to market and pullback in commodities prices overnight. The RBA highlighted unexpectedly low Q1 CPI and less risk for the housing market for their decision to lower rate to record low. USD rebounded during US trading hours dominated by flows as headlines were light.
Going forward, Retail Sales and Trade Balance are on Thursday, RBA’s quarterly statement on monetary policy and US employment data on Friday are scheduled to be released. RBA’s SoMP will be closely analysed for any revision in inflation and economic growth forecast, to give guidance whether the RBA will cut again this year. US employment data will shed further light on the state of labour market. A solid hourly earnings and new jobs may force “data dependent” US Fed to hike rate. Prospect of RBA easing again and US Fed hiking sooner than expected will return the focus on central banks divergence, the main theme in 2015. This could potentially push the AUDUSD lower to 72-73.
Oil prices continue to slide for a third consecutive day as expectations mount for a record build in crude-oil inventories. American Petroleum Institute (API) data released yesterday recorded a build of 1.3mln barrels in crude inventories. API data is closely monitored by the market to provide guidance for the official U.S Energy Information Administration (EIA) data released tomorrow morning. Failure for OPEC and non-OPEC producers to meet an agreement on production last month is driving competition between producers for market share. As production from OPEC continued to increase throughout April, the sustainability of prices at these levels is questionable. Recent production and inventory data indicated still-high output around the world. If the oil price continues to rise, shale oil producers in the US may begin to increase production levels, adding to the global supply glut. Hedge funds increased their net long positions for the third straight week ending April 26. Pushing net long positions to the highest level since May 12, 2015.
As hedge funds and money managers continue to bet on the oil price recovery, this could pose risk for further downside. If production levels continue to increase while consumption from China falls, the initial contraction in oil prices could trigger wide-spread liquidation of positions.
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