AUD commentary [01/06/17]

Australian Dollar

Soft commodity prices continue to undermine the Aussie dollar which is struggling for momentum despite broader USD weakness. Iron ore prices remain at the heart of the matter amidst China growth concerns. But sliding oil prices have compounded the view putting pressure on all commodity-linked currencies.

China concerns are mounting despite the beat on yesterday PMI as the actual impact of higher funding cost have yet to be realised in the manufacturing and service sector.

Aussie appears to be hanging on by a thread, and if weren’t for the dwindling Fed rate hike expectation beyond June, the Aussie could very be trading well below the .7400 handle.

Oil remains on a very slippery slope as traders continue to hammer prices lower in total defiance to OPEC production cuts. Speculators will continue to throw down the gauntlet amid concerns about the growing supply glut more so as US rigs continue to ramp up production.

API reported a draw of 8.67 million barrels of US crude oil and coming at a timely reprieve for prices.But given the market’s current resolve it’s more likely the knee-jerk is faded rather than extended as conversation around oil remains very bearish

While external drivers should remain dominant, these mornings CAPEX and Retail sales data could produce a limited rise, but the tail risk is most certainly for weaker prints with the Aussie precariously perched at.7425