Aussie Gains on Improved Consumer and Business Confidence, Yen Under Pressure

Australian Dollar is having a broad recovery in Asian session today, bolstered by improvements in both consumer and business confidence data. While the rally’s strength is still limited, Aussie appears to have some room for further upside before encountering near-term resistance levels. European majors follow as the next strongest, with Sterling holding a slight advantage over other peers.

Yen remains under pressure due to expectations that the BoJ will not alter its ultra-loose monetary policies anytime soon. Dollar is also losing ground on positive market sentiment. Canadian Dollar is currently mixed, with the market awaiting tomorrow’s BoC rate decision, where a hold is widely expected.

Technically speaking, CAD/JPY’s retreat from 99.16 seems to have completed at 97.07. The rise from 94.04 short-term bottom could be set to resume. A firm break above 99.16 would confirm this bullish case, targeting 100.85 resistance. The key question is: When the upside breakout occurs, will it be accompanied by a deeper sell-off in USD/CAD or a stronger rally in USD/JPY?

In Asia, Nikkei close up 1.05%. Hong Kong HSI is up 0.33%. China Shanghai SSE is down -0.;23%. Singapore Strait Times is up 0.02%. Japan 10-year JGB yield is down -0.0115 at 0.457. Overnight, DOW rose 0.30%. S&P 500 rose 0.10%. NASDAQ dropped -0.03%. 10-year yield rose 0.127 to 3.415.

Australia consumer sentiment jumped 9.4% on RBA pause

Australia Westpac Melbourne Institute Consumer Sentiment Index witnessed a significant 9.4% increase in April, jumping from 78.4 in March to 85.8. This remarkable recovery can be largely attributed to RBA’s decision to pause rate hikes during its April meeting, breaking a sequence of ten consecutive meetings with cash rate increases.

However, confidence remains weak, sitting -10.4% lower than April of the previous year, before the tightening cycle began. Respondents continue to exercise caution, with 34.11% still expecting the Standard Variable Rate to rise by more than 1% over the year, although this figure is down from 44.55%.

Regarding the RBA’s meeting on May 2, Westpac noted that the central bank would benefit from a clean read on underlying inflation from the March quarter Inflation Report, set to be released on April 26, as well as staff’s refreshed economic forecasts. Westpac anticipates that a final 0.25% increase in the cash rate during the May Board meeting would be the best policy approach, rather than waiting for additional information and risking higher rates later in the cycle.

Australian NAB business confidence improved, conditions remain resilient

Australia NAB Business Confidence improved from -4 to -1 in March, while Business Conditions dropped slightly from 17 to 16. Delving into some details, trading conditions rose from 25 to 26, profitability conditions dipped from 14 to 13, and employment conditions fell from 12 to 10.

NAB Chief Economist Alan Oster commented, “Business conditions have been resilient, slowly edging lower over the past few months but remaining well above their long-run average.” He added that “trading conditions are particularly elevated, indicating that businesses continue to experience strong demand, and conditions are generally strong across states and sectors.”

On the topic of confidence, Oster stated, “Confidence appears to have stabilized, but it remains below average at -1 index point.” He noted that confidence was particularly poor in retail and wholesale sectors, likely due to firms being concerned about the sustainability of consumer spending.

In summary, the survey suggests the Australian economy is still holding up, with some easing in inflation. However, Oster emphasized that “there is still a long way to go to bring inflation back down to the RBA’s target band and growth could be more volatile from there.”

China CPI slows to 18-month low, PPI sees steepest decline since June 2022

China’s CPI slowed from 1.0% yoy to 0.7% yoy in March, falling below the expected 1.0% yoy and marking the lowest level in 18 months since September 2021. Excluding food and energy, CPI increased from 0.6% to 0.7% yoy. Food prices rose by 2.4% yoy compared to a year ago, down from 2.6% yoy in February. Notably, pork prices surged by 9.6% yoy, up from a rise of 3.9% yoy in February.

Dong Lijuan, an NBS statistician, attributed the easing consumer inflation in March to “continued resumption of production and life as well as sufficient market supplies.” He also mentioned that the fall in factory-gate prices was affected by a high comparison base in the previous year.

Meanwhile, PPI dropped from -1.4% yoy to -2.5% yoy, matching expectations and marking the steepest decline since June 2022. Dong Lijuan, senior NBS statistician, explained that “production and life continued to recover with sufficient supplies in March.”

Looking ahead

Eurozone Sentix investor confidence and retail sales will be released in European session. US economic calendar is near empty with NFIB small business index featured only.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.6317; (P) 1.6352; (R1) 1.6388; More…

EUR/AUD dips slightly lower today but stays well above 1.6216 minor support. Intraday bias stays neutral for the moment. Considering bearish divergence condition in 4H MACD, firm break of 1.6216 should confirm short term topping, after rejection by 1.6389/6434 cluster resistance zone. Intraday bias will be back on the downside in this case, to 1.6033 support and possibly below. However, on the upside, decisive break of 1.6389/6434 cluster resistance zone will carry larger bullish implications.

In the bigger picture, focus stays on 1.6389/6434 cluster resistance (38.2% retracement of 1.9799 to 1.4281 at 1.6389). Sustained break there should confirm that whole down trend from 1.9799 (2020 high) has completed. Further rally should then be seen to 61.8% retracement at 1.7691. However, rejection by this cluster resistance will make medium term outlook neutral at best.

Economic Indicators Update