Key overnight events:
- Atlanta Fed chief Dennis Lockhart and San Francisco’s John Williams both signalled on Tuesday that the US economy could warrant a June rate hike; investors currently only see a 12% chance of such a move, according to pricing in interest rate futures contracts on Bloomberg.
- The S&P 500 Index dropped 0.9%, erasing Monday’s 0.8% advance; financial and energy shares paced declines. The Bloomberg Spot Dollar Index rose the most this year, closing 0.7% higher and extending gains this morning by another 0.3%, following comments from Lockhart and Williams.
- Crude oil futures expiring in June fell 2.5% and closed below its 200-day moving average. US government data is forecasted to show rising stockpiles kept crude supplies at the highest level in more than 80 years; analysts are expecting a surplus of 750,000 barrels.
- The RBA cut interest rates to a record low of 1.75%, from 2.00%, following last week’s disappointing inflation data. The market was pricing in a 50% probability of a cut.
- Japan Finance Minister Taro Aso said the government is concerned about intensified yen moves and will respond if needed. The BOJ’s Kuroda reiterated that monetary policy is focused on price stability, rather than exchange rate.
- The EU cut its 2016 euro-are inflation forecast to 0.2% from 0.5% and lowered GDP view as well, to 1.6% this year and 1.8% in 2017 – both 0.1% lower than initially forecasted in February.
- Spot 1.3532
- April PMI rose to 49.8 from 49.4, beating forecasts of 49.5 and registering its highest reading since Jun 2015.
- USDSGD rebounded from the 1.3400 level, climbing 0.8% higher and within close proximity to its 2-week resistance of 1.3562.
- Spot 0.7492
- AUDUSD reversed a 1.2% gain and ended with a 0.9% decline, following the RBA’s rate cut. The currency pair extended declines today, falling by as much as another 1.3% to a low of 0.7467, the lowest since 17th Mar, and taking out the 50-day moving average in the process.
- The AUDUSD uptrend since mid-January seems to have broken down with yesterday’s move; the next support level to be tested lies at 0.7385.
- Interbank cash rates futures for August were yielding 1.61% earlier today, indicating about a 50% chance that the RBA will cut rates again that month.
- Spot 1.2726
- 1.2500 proved too strong for USDCAD bears as the currency pair rebounded off lows of 1.2461, and climbed as much as 1.4% higher to 1.2749.
- 1.2835 remains the next level of resistance above.
- Bank of Canada Governor Poloz commented that the power of monetary policy tends to lose some power as interest rates head towards zero or turn negative.
- Spot 6.5074
- The PBOC lowered its reference rate by 0.6%, the most in 9 months, to 6.4943 after the US dollar strengthened broadly overnight.
- USDCNH added 0.3% to 6.5096, rising to the highest in a week.
- Chinese authorities have issued verbal warnings to commentators whose public remarks on the economy are out of step with the government’s upbeat statements, WSJ reports.
- Spot 8.1307
- Following US dollar strength and oil’s decline overnight, USDNOK reversed losses, rebounding off the 8.0000 level and climbing by as much as 1.3% to 8.1374.