Aussie slips on RBA minutes, China dumps US Treasury holdings

Summary:

• Australian dollar loses some ground in early European trading following RBA minutes
• China slashed its US Treasury holdings in April yet before a trade war escalation
• UK’s Hammond may step down over May’s spending plans

Crucial labour market

The Australian dollar is the weakest major currency this morning losing 0.2% against the US dollar. This underperformance came after the Reserve Bank of Australia released its account from June’s meeting. By and large, the monetary policy board agreed that further policy easing was more likely than not and reiterated the importance of the domestic labour market in determining future steps in monetary policy. On top of that, the central bank suggested that interest rates were not the only option being at RBA’s disposal. In terms of the exchange rate the RBA said that lower rates would push down the value of the Australian dollar and reduce household debt repayments. On the other hand, the board was aware of the fact that lower rates hurt savers but they also would stimulate the economy. Finally, the document admitted that an escalation of the US-Sino trade dispute would lead to downside risks to the global economy. Looking at market-based odds for rate changes in the Australian we may notice that there is a 70% probability for such a move in August and 90% by the year-end.

Technically the AUDUSD is trading in the vicinity of the crucial area in the form of the lower boundary of the descending channel. One may suppose that a breakdown of this level would push the price toward another important technical support at 0.6780 or so. Overall, there is no doubt that Wednesday’s Fed meeting should affect other currencies to a large extent. Source: xStation5

China dumps US debt

Looking at Asian equity markets one may notice that the Shanghai Composite is losing 0.15% while the Hang Seng is gaining 0.6%. In turn, the Japanese NIKKEI is the largest loser this morning being 0.9% down mainly due to the strength of the yen. In terms of data we got a report regarding US Treasury holdings being in the hands of China. It showed Beijing lowered its holdings in April by $7.5 billion taking the overall value to $1.11 trillion, the lowest in almost two years. It needs to be said that this slump came yet before both countries entered another level of the trade conflict when Donald Trump chose to raise tariffs on $200 billion of Chinese goods. Although some argue that China may dump US debt further as a retaliatory option, it is very unlikely Beijing will do so as it may face difficulties in parking its cash in quite safe assets. The report also showed that Japan remained the second largest holder of US Treasuries having $1.06 trillion in April (down from $1.08 trillion). Overall, the value of US debt being in the hands of foreigners fell in April by $40.1 billion to $6.43 trillion.

China lowered its US Treasury holdings in April to the lowest level in all but two years. Source: Bloomberg

In the other news:

• China’s house prices rose 0.7% m/m in May after rising 0.6% m/m in April

• New Zealand’s Westpac consumer confidence index fell to 103.5 in Q2 from 103.8 in Q1

• UK’s Philip Hammond is reportedly prepared to resign due to May’s spending plans as she wants to lock in a 27 billion GBP education package before she departs

• A British Chamber of Commerce survey showed UK firms look to cut investment by 1.3% y/y this year, the most in 10 years; they play increase investment 0.4% y/y in 2020