Market Update 24/05/2024

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US equities fell and bond yields increased after strong US PMI data led markets to lower their expectations for Fed easing later this year. The yield on the US 10-year bond increased by 5 bps to 4.48%, which is supporting the USD. US Business activity for May grew at its fastest pace in two years, driven mainly by stronger growth in service industries and a rise in inflation. The US Flash Services PMI rose by 3.6 points to 54.8, its highest level since April 2022, indicating expansion if the figures are above 50.00. US jobless claims fell last week, remaining low as both demand for workers and layoffs decreased.
 
NZDUSD remained largely unchanged. Expectations for Fed rate cuts were reduced as data indicated accelerating US business activity, strengthening the USD against most G10 currencies. The NZD held steady over the last 24 hours, supported by slightly positive retail sales figures (+0.5% q/q in Q1 vs -0.3% expected) and recovering some gains lost after the RBNZ announcement on Wednesday. Interest rate expectations are continuing to impact the NZD, the US now expecting rate cuts around the Nov/Dec meetings compared to the previous expectations around Sept/Nov, and New Zealand is now eyeing for Nov/Feb, previously considering Oct. Later rate cuts by the Federal Reserve could lead to a weaker NZD, changes in New Zealand’s own rate expectations also play a role. Key support levels for NZDUSD are at 0.6070, 0.6045 & 0.6000. On the upside, the 0.6130-50 range has been a challenging resistance area.
 
AUDUSD rose above 0.6650 but then dropped back below 0.6600. NZDAUD cross demonstrated the impact of the Reserve Bank of New Zealand (RBNZ) more hawkish update from Wednesday, reaching a five-week peak just below 0.9240.
 
USDJPY briefly exceeded the 157.00 level, marking the first time since the official Japanese intervention earlier this month, and is currently hovering just below this mark. Meanwhile, NZDJPY traded to a new 17-year peak of 96.10 before retracing back to 95.60.
 
NZDEUR paused the upward momentum during the US trading hours due to shift in risk sentiment. After reaching highs around 0.5660 on Wednesday, it dipped below 0.5640 yesterday but has since rebounded by nearly 3% from the swing low on 1^st May. NZDEUR is likely to continue its upward trend because the European Central Bank (ECB) indicated a potential rate cute in June while the RBNZ showing no urgency of a rate cut.
 
On the economic data front, the main release for the day is National Core CPI for Japan at 11:30am NZT. Later tonight, Retail Sale data are scheduled to come out from the UK & Canada. And to wrap the week, US Durable Goods Order and Fed Governor Waller will speak just before the revised University of Michigan Consumer Sentiment report is released.




 Here are the latest mid-market rates:

 

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