Aura Global Insights, 04 Jun 2025

This outlook contains information correct as at 1430hr SGT on 03 Jun 2025

Trump’s actions on fiscal policies, trade and geopolitics is causing uncertainty and volatility in US financial markets. In the latest twist, the US Court of International Trade ruled the bulk of Trump’s new import taxes were issued illegally and a second federal judge declared a number of Trump’s levies unlawful. However, a federal appeals court temporarily paused the rulings and the case will likely end up before the Supreme Court. The legality has been called into question by federal judges for violating not only the law on which they were ostensibly based, but a Supreme Court doctrine that deems such monumental moves are the province of Congress.

As a consequence of US government debt approaching USD37 trillion and 30-Year Treasuries going above 5.0%, Moody’s on 16 May lowered the US credit rating to Aa1 from Aaa, finally joining Fitch and S&P Global Ratings in down grading the world’s biggest economy below the top triple A position. The federal budget deficit is running near USD2.0 trillion a year about 6.9% of GDP in 2024.

Japan is still the largest holder of US Treasuries but in March China shrank its holdings and has been replaced by the UK as the no. 2 holder. As warning signs emerge, America’s interest bill alone could accelerate fiscal deterioration as investors begin to question whether they should loan the US government more money.

The Federal Open Market Committee (FOMC) policymakers agreed to hold interest rates steady at their May meeting due to the “considerable uncertainty” around US trade policies and “significant uncertainties” surrounding fiscal, regulatory and immigration policies. According to JP Morgan Chase CEO Jamie Dimon, recession remains a possibility as tariff fallout continues to buffet global economies.

There’s an old stock market adage that says, “Sell in May and go away”. But against all these uncertainties, the S&P 500 gained 6.2% and NASDAQ 9.6% in May, marking their strongest monthly performance since November 2023. Market watchers see 5,600 and 5,400 as key S&P 500 support levels, with a retest of 5,000 unlikely. However, market gains may be capped by ongoing legal battles over President Trump’s tariffs.

Market attention this week should remain on tariffs, US fiscal developments and Central Banks’ actions. The Bank of Canada (4 Jun, 9.45pm SGT) and the European Central Bank (5 Jun, 8.15pm SGT) are expected to cut their policy rates by 0.25%. Investors await speeches from BOJ Governor Ueda (3 Jun, 3:50pm SGT) and FOMC Chair Powell (4 Jun, 1.00am SGT).

The US economy contracted a better than expected 0.2% (estimate 0.3%) in Q1 2025, marking the first GDP decline in three years. A clearer gauge of the state of the economy will appear after employment data out later this week:

• 4 Jun: May ADP Employment change (Bloomberg estimate +110,000 from +62,000 in Apr)
• 6 Jun: US May Labour Market Report (Non-Farm payrolls Bloomberg estimate +125,000 from +177,000 in Apr) unemployment rate (consensus 4.2% same as Apr)

Morgan Stanley strategists favour developing countries’ currencies to modestly appreciate against the USD by year end but lagging some G10 currencies. A gauge of emerging-market currencies is up more than 5% this year, the best performance through May since 2017.

This may negate the USD’s interest rate and safe haven advantages implying future weakness.

Oil prices, though still under pressure, have recovered with WTI trading around USD62.40/bbl (5 May USD57/bbl).

Overnight US 10-Year Treasuries closed unchanged at 4.44% (5 May 4.34%), Australian 10-Year Govt Bonds closed up 0.02% at 4.28% (5 May 4.27%) and Euro 10-Year Bonds closed up 0.02% at 2.52% (5 May 2.51%).

AUDUSD

The RBA is shifting its focus from inflation to economic risks arising from Trump administration's tariff regime and geopolitical upheavals. These coupled with China’s moribund economy would indicate prolonged weakness in AUDUSD.

Our bearish view for AUDUSD to break down to the psychological round figure support of 0.6000 occurred, after crashing through the Support/Resistance Zone at 0.6200–0.6300. AUDUSD has rebounded through this Zone to challenge 61.8% Fibonacci Resistance at 0.6460 for almost two months. The challenge appears unsuccessful and the next move may be down to the 0.6200–0.6300 Support Zone.

Image source: Bloomberg 03 Jun 2025

EURUSD

Similar to the AUDUSD, EURUSD faces the same challenges. Meanwhile data showing that in May French inflation fell to its lowest level since December 2020 and perception ECB is dovish should weigh down any further Euro strength.

EURUSD rallied strongly in April but met strong Resistance above the 50% Fibonacci Resistance of 1.1490 and is in a correction mode. From the chart formation, we may see a further correction in the coming weeks, which may see EURUSD fall back towards 1.1000.

Image source: Bloomberg 03 Jun 2025

GBPUSD

CPI rose by 3.5% in the year to April, faster than market expectations and well above the previous month’s reading of 2.6%. GBPUSD has rallied strongly due mainly to a much weaker USD. Brexit still weighs, although the British government is moving closer to the EU again.

Instead of the consolidation we expected between 1.2800 and 1.3000, GBPUSD rallied to almost 1.3600, a level not seen since January 2022. We may still see a further push to 1.3650 but strength appears to be exhausting and possibly pullback to around 1.3200.

Image source: Bloomberg 03 Jun 2025

USDJPY

In Japan core CPI rose by 3.5% in the year to April, the sharpest climb since the inflationary surge in 2022 and 2023. The JPY should be supported by divergent Central Bank policy expectations, BoJ aiming to increase interest rate while the Fed is expected to cut.

USDJPY traded lower than expected to briefly touch 140.00. The subsequent pullback to almost 149.00 could not sustain and USDJPY has fallen back to around 143.00. We do expect volatile trading in the next few weeks between 140.00 and 150.00.

Image source: Bloomberg 03 Jun 2025

USDSGD

Singapore's economy grew 3.9% (consensus estimates 3.8%) in the three months through March YoY, but the government has maintained its forecast for 2025 GDP growth at 0–2% due to tariffs and geopolitical tensions. The SGD is expected to benefit as Singapore has always been seen as a safe haven in Southeast Asia. In anticipation, the Monetary Authority of Singapore is expected to reduce the appreciation of the SGD Nominal Economic Exchange Rate (S$NEER) policy band to slow down SGD appreciation.

USDSGD’s expected rebound to 1.3550 was short lived and the downtrend exerted its momentum for a steep drop to 1.2800. A downtrend channel that shows USDSGD should have limited upside to channel top around 1.3000–1.3100 in the coming months.

Image source: Bloomberg 03 Jun 2025

AUDSGD

AUDSGD exceeded our bearish view target at 0.8300, to penetrate the Significant Support at 0.8100. The rebound has brought AUDSGD to challenge the Resistance Zone at 0.8400–0.8500. Chart formation is showing a likely fall back towards the 0.8100–0.8200 level.

Image source: Bloomberg 03 Jun 2025

XAUUSD

Gold is up about 30% year to date and investors are taking some profits and assessing any more upside potential. The gold-to-silver ratio is hovering above 100:1 indicating that silver may be undervalued relative to gold. However, the average ratio since 1970 is 54:1 and this would indicate gold can be considered overvalued relative to silver. Analysts suggest this disparity could present a tactical opportunity for investors, especially as silver’s dual role as both a precious and industrial metal continues to attract attention.

Gold has exceeded our technical target at USD3,200, hitting a high of USD3,500.10 but it has run out of steam and USD3,440 poses a significant barrier. In the next few weeks, we may see XAUUSD test the USD3,200 Support.

Image source: Bloomberg 03 Jun 2025

Note: In Candlesticks Chart, Green bars mean the Close is higher than the Open price and Brown bars mean the Close is lower than the open price.

Sources: Bloomberg, MSNBC, Reuters, Morningstar, Business Times, 03 Jun 2025

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