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Global Market Update
The View from Australia

Craig Killaby March 12, 2019



> AU January Home Loans : -2.6% v. -2.0% exp.

> AU February NAB Business Confidence : 2 v. 4 prev.

> UK January GDP : 0.5% v. 0.2% exp.

> UK January Manufacturing Production : 0.8% v. 0.2% exp.

> US February CPI & Core CPI : 0.2% & 0.1% v. 0.2% & 0.2% exp.

> UK Key Parliamentary Vote – Rejected Brexit deal


Overnight Headlines (BBG)


>  May’s Brexit deal was routed, putting all options back in play


What you need to know


It was a whippy day in FX markets, however the AUD stayed relatively steady with most of the action coming from overseas markets as the world focused on the ongoing debacle that is Brexit. Touching on the local data, home loans dropped yet again in January as the concerns of banks tightening lending post-royal commission continued in 2019. At the same time, NAB’s business survey saw contraction month/month in both conditions and confidence further extending the drop in the AUD. AUDUSD hit a low of 0.7058 in the immediate aftermath of the data release although the currency was able to pare losses and close the session back where it began in what was a tight range for the Asian session. It was all about Brexit overnight, as the UK voted down, in convincing fashion, a deal that would provide an orderly exit from the EU. GBP/USD pared back nearly all of the gains seen from the optimism yesterday, finishing the day down 0.7%. Next up for the UK is another vote on a number of amendments, most importantly whether or not they will move to extend the deadline of the exit. The leverage now shifts over to the EU, whom have been adamant that this deal (that was voted down) was their last. The UK will vote on these deals on Thursday night, and will be crossing their fingers that the EU members will grant an extension. Still a lot of volatility in the GBP, and risk as a whole, and although most will want a resolution to this story it is not going to come quickly as we have already seen. Negotiating something as complex as this takes a lot of buy in, and concessions, something that the UK does not seem to be doing well.


In the US, the Dollar was hurt by some soft inflation figures as the core inflation number missed expectations by 0.1%. The data seems to be pointing in the wrong direction for Dollar bulls, with the markets now focused on this new tool that the Fed has been alluding to since the Fed chair Powell mentioned it a few weeks ago. US equity markets edged out some gains, seeing the S&P500 finish up 0.3%. Demand on UST markets saw the yield curve fall, with the 2s and 10s down 2.5-3.8bp. Commodity markets in the black, with both Iron ore and Copper up on the day. WTI crude also having a strong start to the week up 0.5%. Gold also up 0.5%.


The Day Ahead




> AU March Westpac Consumer Sentiment : 4.3% prev.

> UK Annual Budget Release

> US January Core Durable Goods Orders & Durable Goods Orders : 0.1% & -0.5% exp.

> US February PPI & Core PPI : 0.2% & 0.2% exp.

> US EIA Crude Oil Inventories : 2.7M exp.


Markets are watching the UK very closely, and after yesterdays’ vote all options are on the table and there are still plenty of unknowns. The focus is still on overseas markets as Brexit headlines dominate, with the data calendar light in Asia today and the rest of the week. Today we have tier two inflation numbers, with the data highlight coming from the US’s delayed durable goods orders (from January) and the producer inflation figures. Tough to see a strong move higher for the AUD unless there is a major surprise on Brexit, however an extension would likely be welcomed and see a bout of risk aversion spread. This most likely would not come until next week, as the EU meets as a whole to discuss the situation. Tight range today, with little catalysts.


Range for the day : 0.7050 – 0.7105


AUD/USD Technicals


The pair is hugging the 10SMA, however it is a much healthier technical picture after the bounce off the 0.7003 low. Likely that the AUD will need some sort of elongated extension of Brexit to break the 0.7100 level with the 55/100SMAs next up. It looks as though the pair is going to hold the 0.7000 level, however a break of 0.7003 will be needed to see bearish momentum build leaving the pair vulnerable to a drop to the high 0.6900s.


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