USD flows: Mild USD bid as US and Iran skirmish

A mildly more risk negative tone has been seen overnight, with AUD falling back as the US and Iran skirmish in the Gulf, despite an RBA rate hike, admittedly one that was well anticipated. Nevertheless, the AUD remains close to the top of its range for the year, and at this stage it looks likely to require a much more severe reversal in risk sentiment to challenge support.

For today, further reaction to the renewed fighting in the Gulf may see the USD benefit modestly across the board. The US trade data and ISM services survey later are the main data focuses. We expect April’s ISM services index to pick up to 54.5 from 54.0 in March, after slipping from February’s 56.1, which was the highest reading since July 2002. April’s S and P Services PMI picked up, but was still quite weak at 51.3 after slipping to 49.8 in March. The two series are not well correlated.