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Global Market Update
The View from Australia

Craig Killaby February 10, 2019



> CA January Employment Change & Unemployment Rate : 66.8K & 5.8% v. 6.5K & 5.7% exp.


Weekend Headlines (BBG)


>  Balance sheet could be in Fed’s regular toolkit, San Francisco Fed’s Mary Daly suggested; she also said patience on future U.S. rate increases is warranted

>  Congress’s Talks on Border Funds Hit a Hitch Over Detention Beds


What you need to know


It was a tough week for the Aussie, with the fears of rate cuts and the overall health of the local economy cited by the RBA weighed heavily on the AUD and saw the currency dropping 2.25% on the week against the Dollar. The RBA was front and centre yet again Friday, as the market looked to get more information following Lowe’s comments on the rate picture in the upcoming year. Friday’s report showed the RBA was growing increasingly concerned with the health of the local economy and pointing to the housing market as the biggest culprit for the concerns, dropping both GDP and inflation forecasts for the year. At the same time, news broke via Politico that President Trump is planning to sign an executive order this week to ban Chinese telecom equipment from American networks. Immediately a bout of risk aversion fell across markets, as the March 1st deadline on addition tariffs comes closer. The signs of a trade deal getting done before the deadline continues to dwindle, with Trump stating last week that he no longer plans to meet with Xi prior to the deadline. US equity markets were cautious to close the week, seeing the S&P500 close 0.7% higher for the session.


In FX markets, it was the best week for the USD in quite some time as the DXY finished up 0.9% on the week, marking its biggest weekly gain since August 2018. The EUR and GBP were under pressure to close the week, as the Italian debt fears started to peek back into the picture while no resolution in the Brexit debacle continues to put pressure on the Pound. CAD was the best performer on the session, gaining 0.25% against the Greenback after Friday’s employment report exceeded expectations by nearly 13 times market consensus. UST yields falling across the curve, with the 2s and 10s down 1.7-2bp from Friday morning. Not a whole lot to report in the commodities space, with WTI crude and Gold up a touch. Base metals were down, Copper and Iron ore seeing losses while the market braces for China to reopen today after Golden Week.


The Day Ahead




> JP Bank Holiday

> UK December GDP & Prelim GDP : 0.0% & 0.3% exp.

> UK December Manufacturing Production : 0.2% exp.

> EU Eurogroup Meetings

> US FOMC Member Bowman to speak


With little on the data calendar, markets ready for China to come back and it will be interesting to see how the volume trades with the AUD after the rate picture changed since being away. Although China is back, we lose Japan today, so markets will likely still be choppy with very little to trade off of in the early part of the week. UK GDP and Manufacturing data the highlights for the European session, look for markets to become increasingly bearish on the GBP as Brexit woes continue to rear their ugly head on the data coming out of the UK.


In the US, it will all be about trade and the government shutdown as Congress will likely be working hard to try to avoid another costly government shutdown. Would not be surprised to see the AUD get a boost as China comes back in, waiting for direction on the CNY fix around mid-day as the only real data catalyst during Asia.


Range for the day : 0.7060 – 0.7130


AUD/USD Technicals


The RBA’s SOMP showed that downside pressures are weighing on the Dollar from a macro perspective, and the bearish bias is showing on the technical front as well. The 55DMA looks to be crossing the 100DMA to increase that bearish momentum with support seen at 0.7070 and the session low of 0.7061. A change in trade sentiment would likely be needed to break higher, with the 55/100DMAs now acting as resistance at 0.7167 and the 200DMA drifting down towards 0.7282. Higher highs and lower lows likely throughout this week, as a new range starts to form.


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