Intraday Market Thoughts

Bin Laden Buzz Fades, RBA on Deck

by Ashraf Laidi
May 2, 2011 23:01

The Bin Laden buzz continued to fade through U.S. trading, pulling the dollar down with it. Hawkish rhetoric boosted the euro to the top of the G10 pile while CAD lagged ahead of election results. We look forward to todays RBA decision with the Australian dollar pushing up against 1.10.

The early jubilation that lifted the USD and stock markets dissipated. On the whole, ranges were tight as traders preferred to follow the details and fallout from the Osama Bin Laden assassination. The euro narrowly edged out USD as the top performer after Constancio and Juncker warned of upside inflation risks. Wellink also said Greek debt maturities could be extended.

The Dollar Index fell to a fresh 2-year low of 72.72 but recouped some of its losses after a better-than-expected ISM manufacturing report. The index decelerated to 60.4 from 61.2 in March (exp: 59.5). The details of the report were mixed with strength coming from new export orders but an inventory build points to a further slowdown. U.S. inflation signs continue to point higher with the prices paid component climbing to 85.5 from 85.0, a high since July 2008 (83.0 exp). The US dollar also got a late lift after the Treasury announced $142 billion in Q2 debt issuance, much less than the $299 billion January estimate. Geithner now estimates the debt limit wont be reached until Aug.

The metals trade was action packed with gold falling $30 to start the week. It then bounced back to just short of the $1576 all-time high before again collapsing back to $1544. Key short-term support rests at $1533 with a breach completing a double-top formation and potentially opening the way back toward $1500. The silver trade was equally dramatic as it bounced between $42.50 and $47.50.

Asia-Pacific Preview

At 0030 GMT we turn to the RBA decision. Of 13 economists polled, one expects a rate hike, one no hikes this year and 11 a hike in Q3. At the April 5 meeting, the RBA held at 4.75% and said inflation is consistent with the medium-term objective of monetary policy. Last week, Q1 CPI jumped to 1.6% q/q compared to the 0.4% prior and 1.2% expected. This has led some to believe that the RBA will deliver hawkish rhetoric that sets up a hike next month. This fear may be overblown as the RBA warned that temporary factors would drive up the CPI before it moderates. Technically, AUD/USD remains in a very powerful uptrend. The pair touched 1.1012 in US trading but has potentially generated a short-term double top with 1.0921 acting as key support.

By AB - Staff


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