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Global Market Update
The View from Australia

Craig Killaby July 12, 2018

Data/Speakers

> AU June MI Inflation Expectations : 3.9% v. 4.2% prev.

> US June Core CPI & H/Line CPI : 0.2% & 0.1% v. 0.2% & 0.2% exp.

> US Unemployment Claims : 214K v. 226K exp.

What you need to know

Oh how quickly things can change in this global landscape, as China’s tone towards the US threats caught markets by surprise as the two nations look to head back to the negotiation table. It was a relatively uneventful day during yesterday’s Asian session, with Asian equities rebounding throughout the latter portion of the day and buoying commodity currencies in the process. The AUD bounced off its 0.7360 handle to trickle higher, as commodity prices edged up throughout the 24 hour session with the US/China trade dispute taking a positive turn the dominant theme. Investors were awaiting China’s response to the US’s $200bio threat, and they were surprised when reports broke that China took a reconciliatory tone as high level talks between the US Treasury Sec. Mnuchin and Chinese Officials look to pick back up with the US demanding deeper economic reform to move ahead. The news sparked a risk-on trade, with demand falling for the havens seeing USD/JPY pick up above 112.60 and USD/CHF pushing up to a 2 month high. The AUD caught a nice bid, rallying up to 0.7420 as commodity based pairs the darlings of the session with Copper price up 1.4% from yesterday. In Europe, the ECB’s minutes from their June meeting that sent the EUR/USD sliding did little to provide any support for the pair in upcoming months. The minutes showed that Draghi and his dovish ways are well in control of the central bank, while they reiterated the importance of EU data points and showed unanimity amongst the members. EUR/USD little changed on the session. Trump has also reaffirmed the US’s commitment to NATO after two days of talks which he insulted nearly everyone in the group. Spending demands by the polarizing leader raised concerns of the US backing out of the deal, however he concluded the summit stating his pledge to stay in the pact.

As the markets took the trade developments in stride, there was some important data on the docket for the US to chew on. Focus for a brief second moved from trade to inflation, with the June consumer inflation figures printing slightly below expectations. The headline figure missed the mark, however the annualized figure did little to change to Fed’s interest rate path in the upcoming months. Fed Chair Powell painted a positive picture of the US economy, commenting that it is a ‘good place’ while also noting that a negative change in the trade story could complicate the economic outlook. The Dollar was on the back foot in a session that saw it down 0.10% in DXY terms. US equity markets were the big story, getting a strong lead in from Asia the NASDAQ was able to post a record high while the S&P500 touched its highest level since February. UST yields seeing very minor flattening, with the 2y up a touch and the 10y down very slightly. Commodity markets seeing a push higher in metals, while WTI crude was flat on the day.

The Day Ahead

Data

> NZ June Business NZ Manufacturing Index : 54.5 prev.

> CN June Trade Balance : 188B exp.

> US June Import Prices : 0.1% exp.

> US July Prelim UoM Consumer Sentiment : 98.1 exp.

The Aussie got a nice boost yesterday, sitting just above the 0.7400 level as the highlight for the Asian session today comes out of China with the June trade figures. China is due to release some important figures in the midst of the trade war discussions as it looks ahead to next week’s GDP figures. The risk is that the trade rhetoric has done damage in to what is already a fragile domestic situation. Although there has been a slight reversal in the risk sentiment, the vulnerability of the AUD on headlines is still very prevalent. We are still selling into rallies unless we see a concrete change in the discussions. The AUD seems heavy above in the mid-0.7400s, so will need a significant break higher to change the short term view.

Range for the day : 0.7380 – 0.7450

AUD/USD Technicals

AUDUSD enjoying the relief rally that started in Asia yesterday – Copper and Iron Ore also helping. Still plenty of risk on the horizon but a thought that came to mind this morning is that markets seem to be taking “new” tariff news in their stride. Traders starting to fade the initial “risk off” tape bombs. So for price action in the near term, we think rallies back up to 0.7500 are possible and we will still look to sell in to such strength. Watching USDCNH very closely and a break to fresh highs there (6.7332) should be your immediate ASUDUSD sell signal. Support at 0.7360 (yesterday’s low) and major at 0.7300/10. Resistance at 0.7420 (last night’s high), 0.7484 and 0.7500/05.

 

Technical Analysis written by APAC Head of Treasury Richard Breen

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