Summary:

• Australian dollar has been shored up by stronger than expected retail sales as well as a solid reading of services PMI (AIG)
• Chinese services PMI beats expectations, the economic surprise index stays at its lowest levels since mid-2016 though
• Oil trades higher again following another heavy draw of US stocks reported by API

Both AUD and NZD are the strongest major currencies in the morning, and it may have something to do with strong readings of retail sales as well as services PMI from the Australian economy. In turn, the NZ dollar is higher mainly on the back of a slightly increased demand for riskier assets in general (notice that the kiwi did not suffer from the worst auction of whole milk powder this year which saw a 7.3% decline) as well as lack of US investors who are on holiday due to the Independence Day.

Australian retail sales surprised to the upside in May suggesting that the underlying trend may be about to reverse soon. Source: Macrobond, XTB Research

The biggest positive surprise concerning the Aussie came from retail sales for May which increased 0.4% in monthly terms beating the median estimate placed at 0.3%. Moreover, the prior print was revised upwardly to 0.5% from 0.4%. This figure might be particularly welcome by the Reserve Bank of Australia as it has been stressing downward pressure on consumer spending stemming from a relatively high level of indebtedness as well as dormant real wage growth. In turn, a look at the chart above signals that the underlying trend of retail sales in Australia could be at the tipping point from where we could experience a more noticeable bounce or a comeback toward its multiyear lows.

The jury is still out, and right now investors might be happy with today’s reading. Furthermore, upbeat moods were also boosted by services PMI for June by AIG as it reached as high as 63 points (up 4 points compared to the previous reading) – the highest point ever. It heralds that above-mentioned assumptions pertaining to the reinvigorating retail sales trend are not baseless. On the flip side, the same gauge produced by Markit brought a decrease to 52.7 from 55.9 points. A slight disappointment came from the trade data showing a trade surplus of 827 million AUD while economists surveyed by Bloomberg had forecast a 1200 million AUD overhang. Anyway, this reading was fully dwarfed by robust retail sales and encouraging AIG services PMI.

Technically the AUDUSD seems to be at a critical level from where one may expect a healthier rebound at least toward 0.75. Source: xStation5

Looking elsewhere it needs to mention Chinese services PMI for June which grew to 53.9 from 52.9 points a month earlier allowing the composite gauge to climb 53 from 52.7. Even as Chinese macroeconomic readings do not appear to offer major disappointments, the economic surprise index provided by Citi is moving close to its lowest level since mid-2016. It implies that in order to see an improvement in this indicator economists might lower their expectations unless there is brisk recovery in the data.

The Chinese economic surprise index provided by Citi has recently come to its lowest point since mid-2016. Source: Bloomberg

Finally, after a bumpy day for WTI prices on Tuesday some relief was offered from the API release producing another huge decline of stockpiles. It showed that oil stocks shrank 4.5 million barrels well above the level anticipated by surveyed commodity pundits. What’s more, gasoline inventories declined 3.1 million barrels as well whereas analysts had forecast just a 1 million barrels draw. These numbers helped oil prices get back to the levels seen prior to the sudden slump coming from nowhere. Keep in mind that because of a holiday in the US today the EIA will release its weekly report tomorrow afternoon.

WTI prices see-sawed yesterday, and as a result they already tested a support at $72.9 or so. This level should serve as a major technical level for bulls right now, and until the price keeps moving above it, a move toward $77 remains on the table. Source: xStation5