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Global Market Update
The View from Australia

Craig Killaby January 31, 2019

Data/Speakers

 

> AU Q4 Import Prices: 0.5% v. 0.3% exp

> AU December Private Sector Credit : 0.2% v. 0.3% exp.

> CN January Manufacturing & Non-Manufacturing PMI : 49.5 & 54.7 v. 49.3 & 53.9 exp.

> EU Q4 Prelim Flash GDP : 0.2% v. 0.2% exp.

> CA November GDP : -0.1% v.  -0.1% exp.

> US Unemployment Claims : 253K v. 215K exp.

 

Overnight Headlines (BBG)

 

>  Trump said he may soon meet with China’s Xi Jinping to finalize details of a possible trade deal as he declared negotiations in Washington were making progress

>  Trump said he’s “not waiting” for a bipartisan committee to come up with a plan to avoid another government shutdown

 

What you need to know

 

The Aussie’s run continued yesterday, after the market continues to digest what is likely going to be a major change to the Fed’s pace of interest rate hikes in 2019. The Chinese PMI data had little effect on the AUD, with traders seeming to prefer to push it higher pushing towards the 0.7300 level to close the week. Overnight, there were reports that there is progress being made in the trade negotiations although Trump commented that there will be no final deal until he meets with Xi and easing hopes of a deal getting done during these talks. The situation in Europe continues to centre around two things, concern with growth across the EU and the saga that is Brexit. The slow growth that Germany saw at the tail end of 2018 seems to have continued into 2019, causing the EUR to bounce off the 1.1500 level and down 0.25% on the session. No concrete change to the Brexit talks, with rumours circling that MPs are going to start pushing that a reality of an extension of the deadline is on the cards.

 

In FX markets, it was a Dollar strength session seeing the DXY bounce off its 4 month lows seen post-Fed and finish the session up 0.15%. The AUD and NZD continue to be the best performers, with the AUD buoyed by the recent rally in commodities and most importantly Iron ore. AUD crosses regaining some of their strength, with all the crosses barre Kiwi up on the session. UST yields falling yet again as the market prices in what looks like a dovish Fed on the horizon, seeing 2s and 10s down 5bp from yesterday morning. Another day of gains for US equities, as the S&P500 inched higher up 0.9% for the day. As mentioned previously, base metals continue to push higher up 0.4%. WTI crude stopped its recent push higher, down near 0.7% halting its run. Gold up 0.10%.

 

The Day Ahead

 

Data

 

> AU Q4 PPI : 0.6% exp.

> AU January Commodity Prices : 10.5% prev.

> CN December Caixin Manufacturing PMI : 49.5 exp.

> UK January Manufacturing PMI : 53.5 exp.

> EU December CPI Flash Estimate & Core CPI Flash Estimate : 1.4% & 1.0% exp.

> US January Average Hourly Earnings & Unemployment Rate : 0.3% & 3.9% exp.

> US January Unemployment Rate : 3.9% exp.

> US January ISM Manufacturing PMI : 54.1 exp.

> US January Revised UoM Consumer Sentiment : 90.7 exp.

 

It will be interesting to see how the AUD trades in this morning’s environment now that month end flows have finished and the market looks ahead to tonight’s Non-Farm Payrolls. If the payrolls data provides evidence of the Fed’s new found patience, we could see some swift Dollar pressure of which the AUD could be a benefactor. Today, Caixin PMIs the highlight although most traders will be looking ahead to tonight’s data.

 

Range for the day : 0.7230 -0.7310

 

AUD/USD Technicals

 

Bullish momentum is growing for the Aussie, and the next major obstacle for the pair will be the 200 DMA around the 0.7293 level. If it is able to break and hold, we can likely expect a bullish run at the December 4th high of 0.7394 and the 55 week all the way up at 0.7430. After the recent range break, we see support around the 0.7235 level and 0.7206 although not expecting this to break unless the NFP tonight exceeds by a wide margin.

 

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