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Global Market Update
The View from Australia

Craig Killaby August 16, 2018



> AU July MI Inflation Expectations : 4.0% v. 3.9% prev.

> AU July Employment Change & Unemployment Rate : -3.9K & 5.3% v. 15.0K & 5.4% exp.

> UK July Retail Sales : 0.7% v. 0.2% exp.

> CA June Manufacturing Sales : 1.1% v. 1.0% exp.

> US July Building Permits & Housing Starts : 1.31M & 1.17M v. 1.31M & 1.27M exp.

> US August Philly Fed Manufacturing Index : 11.9 v. 21.9 exp.

> US Unemployment Claims : 212K v. 215K exp.


Overnight Headlines


> Treasury Secretary Steven Mnuchin said the U.S. is ready to slap Turkey with more sanctions if President Recep Tayyip Erdogan refuses the quick release of an American pastor, escalating a diplomatic rift that has roiled global financial markets

> President Donald Trump prodded China to offer more at the bargaining table as the two countries prepared for their first major negotiation in more than two months in an effort to head off an all-out trade war


What you need to know


Some action during the morning of yesterday’s Asian session as the local employment numbers coincided with the announcement that the US and China have decided to go back to the negotiating table later on this month. The employment number for July was viewed as better than expected, although the headline jobs figure missed expectations by around 12K the unemployment rate ticked lower to 5.3% as it sits at the lowest level since 2012. The participation rate declined by 0.2%, impacting the unemployment rate, however the tick lower will be a welcome sign for the RBA who are eagerly awaiting some sort of sign that wage pressures are on the horizon. Although the report is a step in the right direction, there is still a ways to go until the RBA sees the rate closer to the 5.0% it needs for further tightening to occur. The AUD rallied on the back of the data, although the tape bomb that the US/China will be restarting negotiations on trade at the end of the month.


The news triggered an immediate sell off in the Dollar, led largely by the strong moves in the offshore Yuan. CNH the biggest winner of the session, rising over 1% on the back of the news. EMFX continues to be a major driver for risk sentiment, with the news of the US potentially putting some more sanctions on Turkey offsetting some of the USD losses to close the session little changed. Slightly soft housing data and Philly Fed data did little to buoy the Dollar, with the DXY down 0.10% for the day and the Dollar mixed against the majors. The AUD and NZD led the gains for the majors, both up 0.3% on the session with the Aussie hitting a high of 0.7287 yet unable to break through the 0.7300 figure.


AUD crosses up a touch, with the AUD/JPY able to capitalize on the slight risk-off environment coming from the US/China news to finish as the best performing cross up 0.6% for the day. Slight rebound in the commodities space with Copper able to pare back the heavy losses seen in the previous session, up 1.9%. WTI crude also able to push higher, up 0.6%. US equity markets liked the sound of more US/China trade talks, with the S&P500 pushing higher to close up 0.8%. UST yields up slightly with the 2y leading the rise up nearly 1bp. Gold price unchanged for the session.


The Day Ahead




> AU RBA Gov. Lowe & Ast. Gov Ellis to speak

> EU July Final CPI & Core CPI : 2.1% & 1.1% exp.

> CA July CPI : 0.1% exp.

> US August Prelim UoM Consumer Sentiment : 98.1 exp.


My take of a 0.7100 handle is probably off the table with the US/China news, likely keeping the AUD afloat for the time being. Looking ahead to today, RBA Gov. Lowe is testifying in Canberra with no major takeaways from the already released speech. Same old song and dance of the Australian economy heading in the right direction, the next interest rate move is likely up, and concerns about overseas factors some of the key takeaways thus far. Our takeaway, the RBA is not going to be moving rates anytime soon so there is nothing really to see here. Yesterday showed how much a surprise headline could impact the AUD, and moves in EMFX still having a major impact on trading conditions. With no surprises expected from the RBA’s leaders, we are looking at a range staying in the mid-0.7200s not taking into account any exterior factors.


Range for the day : 0.7210 -0.7295


AUD/USD Technicals


Nice bounce for the AUD yesterday, as the 0.7200 handle seems to be same for the time being. The next test for the Aussie will be whether or not it can have a crack at the 0.7300 (Aug 13 high) level to close the week. A close above that level would signal a possible bullish uptick on the cards. Support levels sit at the recent session low of 0.7219, with the 0.7203 YTD low still holding.


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