Asia Open

The Asian session was slightly mixed to start the day, with Nikkei +0.65%, ASX +0.17% and KOSPI -0.05% at the time of writing. This comes as the surprise expansion in US March manufacturing activities overnight triggered mostly a downside reaction across Wall Street, with market participants paring their dovish bets slightly in light of the economic resilience. Notably, the odds for a June rate cut is now priced at 54% versus 64% just a week ago, with the strong set of data triggering some views of higher-for-longer rates.

The US manufacturing Purchasing Managers' Index (PMI) has outperformed by a wide margin (50.3 versus 48.4 consensus), unexpectedly reverting into expansion for the first time since October 2022. Prices paid by manufacturers touched its highest level in 20 months (55.8 versus 52.7 consensus), which may cast some doubts on whether the Federal Reserve (Fed)'s inflation fight will be on track. New orders were also back in expansion (51.4 versus previous 49.2), while manufacturing employment registered a smaller contraction (47.4 versus previous 45.9).

Nevertheless, with the Fed’s tolerance for slightly higher inflation in its latest meeting, it may potentially have to take more to sway the Fed’s views for a delay in rate cuts, with policymakers likely to stick to their wait-and-see stance for further data. The US non-farm payroll data this week will no doubt be crucial, with eyes on any further softening in labour conditions to offer room for earlier policy easing.

Economic data to digest: RBA meeting minutes

This morning saw the release of the Reserve Bank of Australia (RBA) meeting minutes, which revealed that policymakers may not have considered the case for a rate increase in the recent meeting. The central bank acknowledged that the economic outlook remained uncertain and that the risks “seemed broadly balanced”. However, to balance out the dovishness, policymakers remain ambiguous on future policy moves, suggesting that it would take “some time” for the Board to be confident that inflation is returning to target. This seems to set a broadly neutral tone, which may offer little takeaway for markets.

What to watch: AUD/USD

The US dollar has pushed to a four-month high overnight, taking its cue from a surge in US Treasury yields, which prompted the AUD/USD to break below a near-term upward trendline support. For now, the downside bias may remain, with its daily relative strength index (RSI) trading below the 50 level, while its daily moving average convergence/divergence (MACD) edged further into negative territory as a sign of building downside momentum. Thus far, the pair has failed to cross the daily Ichimoku Cloud resistance, with any further downside likely to leave its year-to-date low at the 0.643 level on watch.

AUD/USD Mini Source: IG charts