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Published May 27, 2019

Author: Steve Oram

The AUD had a rough last week falling yet further as Westpac came out with a prediction of three Interest Rate cuts this year, one more than the markets current view. We open though higher this morning as weak US Data on Friday gave us a boost. The US markets are off Monday for the Memorial Day holiday which may see subdued trading of AUD USD today.

US Durable Goods for April were down 2.1%, weaker than expected; with the details painting a picture of a slowing US economy in Q2.

New orders for US made capital goods were not as strong as previously thought in March either and with shipments weakening over March/April indicating a slowdown in manufacturing – no doubt impacted by the stockpiling that took place in the earlier days of the US-China trade war. So with tensions heightened again and the matter far from resolved what further impact will the trade war have on a US manufacturing sector which accounts for ~12% of their economy?

In fact, some Economists said the weak data, uncertainty over the trade war and sluggish global growth could force the Federal Reserve to cut interest rates. Fed Fund Futures say there is a 78.5% chance of a cut by the end of 2019!

It is a reasonably quiet start to the week in terms of data but things heat up towards the back end. Thursday’s revised set of first-quarter GDP from the US will be the key data event for the week. Economists expect a slight downgrade, from 3.2 to 3.1 percent on the annualized growth rate, with the risk tilted to a larger downward adjustment.

Following the GDP release, the Fed’s favoured PCE inflation gauge is projected to put core price growth at 1.6 percent year-on-year, matching a 19-month low. Survey data warns of disappointment here as well, which might spur still greater confidence in the case for near-term easing.

World equity markets rebounded on Friday from the previous day’s sharp fall, after U.S. President Donald Trump said complaints against China’s Huawei Technologies Co Ltd might be resolved within the framework of a Sino-U.S. trade deal, these hopeful comments from Trump regarding trade relations with China assuaged concerns among some investors.

In European news, UK Prime Minister Theresa May announced that she will resign on June 7th but will still play the role of PM until a successor is chosen during the Conservative Party leadership convention beginning June 10th. Markets are uncertain at the moment whether a new prime minister will prove to be positive or negative for the British pound.