Summary:

• Chinese stocks rally as the PBoC could further cut RRR in order to ease monetary conditions
• Australian inflation little changed in the first quarter suggesting no pressure to adjust policy for the time being
• US dollar keeps its last gains, NZ dollar feels the pain the most

Admittedly, US stocks ended the first trading day flat Asian investors shared more optimism which resulted in decent gains. Improved moods came in spite of the fact that the US 10Y yield keeps hovering just shy of 3% reviving some concerns that a breakout of this level could lead to a broader sell-off. Chinese indices stood out the most rallying on hopes that the PBoC could further ease monetary conditions by cutting the reserve requirement ratio (RRR). Let us remind the bank did so last week in order to free up some lending for small firms but shying away from broad-based easing as the authorities pursue to rein in a credit binge in some parts of the economy. As a result, both Shanghai Composite and Hang Seng (CHNComp on xStation5) have gained almost 2% each so far. It’s worth noticing that the index bounced back from a key technical level, but it quickly ran into an obstacle from an upper bound of a broader triangle pattern.

The CHNComp faced some hurdles after recovering from a pivotal technical level. A breakout of this resistance seems to be necessary in order to allow bulls to climb higher. Source: xStation5

In terms of macroeconomic releases it’s worth mentioning Australian inflation which turned out to quite dormant in the first quarter. Headline missed expectations coming in at 0.4% qoq and 1.9% yoy while economists surveyed by Bloomberg had forecast 0.5% and 2% respectively. When it comes to the core gauges there were a notch better, and in a quarterly basis both trimmed mean and weighted average met forecasts showing 0.5% each. In turn, annual price growth brought somewhat higher than anticipated values – 1.9% and 2% for trimmed mean and weighted average. All of that means that the RBA does not need to even think about monetary tightening for the time being at least. Do notice that core inflation, the RBA focuses on, is just under or at the lower bound of the target (it depends on which indicator we watch) suggesting there is still a lot to do in order to get inflation persistently anchored within the goal. In response to the report rate hike odds till December moved down from 38% to just 33% highlighting market participants assign the low likelihood for any moves this year.

Technically the AUDUSD broke its important trend line suggesting bears could have already taken control. Any tries of a recovery could be halted in the vicinity of 0.7630 so be cautious trading the Aussie. Source: xStation5

Finally, let’s add that the greenback managed to preserve its last gains it made yesterday. Looking around the G10 space one may notice that the NZ dollar has been afflicted the most thus far being almost 0.4% down against its US counterpart. There was little fresh news from New Zealand except a speech from PM Jacinda Ardern who is “really positive” about prospects of the FTA with the EU.