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Global Market Update
The View from Australia

Craig Killaby May 12, 2019



> EU March German Trade Balance : 20.0B v. 19.4B exp.

> UK March GDP : -0.1% v. 0.0% exp.

> UK March Manufacturing Production : 0.9% v. 0.1% exp.

> CA April Employment Change : 106.5K v. 11.7K exp.

> CA April Unemployment Rate : 5.7% v. 5.8% exp.

> US April CPI & Core CPI : 0.3% & 0.1% v. 0.4% & 0.2% exp.


Overnight Headlines (BBG)


>  U.S. and Chinese officials wrapped up high-level trade talks on Friday, lacking a deal yet avoiding a breakdown in negotiations even after Trump boosted tariffs on $200 billion in goods from China

>  The White House’s top economic adviser, Larry Kudlow, predicted that the impact on U.S. jobs and growth from higher tariffs assessed on Chinese goods would be “de minimis,” while conceding that “both sides” will suffer from the trade war.


What you need to know


There is really a singular driver of financial markets since last Sunday, and that is seemingly sudden collapse of the US/China trade deal. Although the two sides continued negotiations on Thursday & Friday of last week, the US’ decision to slap another $200bio in tariffs on a range of Chinese exports likely did not help the final stage of crafting the agreement. The tariff deadline came and passed on Friday, with China calling for all tariffs to be removed to prevent retaliation. As the negotiations wrapped up without a deal the markets focused on the inevitable question of what is next. Trump used Sunday as another day to take aim at the Chinese, with more comments on Twitter about how badly they were beating the Chinese in negotiations and that they have China exactly where they want them. Apart from the trade story, the RBA’s Statement on Monetary Policy was released on Friday with a revised set of inflation and growth forecasts for Australia, all of which are lower than six months ago. AUD reaction was limited, although a brief rally above the 0.7000 figure was unable to be sustained as the AUD upside remains hindered by the uncertainty on the US/China situation.


In terms of the economic data on Friday, it was weaker than expected consumer inflation number’s that caught Trump’s eye as he continued to urge Fed Chair Powell to cut interest rates. Although the Fed’s preferred measure will come later this month, the strong growth and low inflation that has been coming out of the US data does fuel the President’s case. Elsewhere, the Canadian employment report on Friday came in much better than expectations by nearly 100K jobs and with the unemployment rate edging lower. The Loonie outperformed, up as much as 0.75% against the USD before paring back some of the gains to finish the week. Currency moves mostly muted from Friday’s open with CAD the best performer against the Dollar, which was down 0.1% in DXY terms. In bond markets, with 10y UST yield drove the push higher up 2.5bp as the 2s lagged up 0.8bp. US stocks jumped on the optimism of a further breakdown in trade talks, with the S&P500 closing up 0.4% although futures have been down sharply this morning following Trump’s weekend tweets. Mixed bag on the commodities front, with Iron Ore and WTI crude both off while Gold opens 0.25% higher.


The Day Ahead




> AU April Home Loans : 2.2% exp.

> AU RBA Ast. Gov. Debelle to speak

> US FOMC Member Clarida to speak


Although today is expected to be quiet on the data docket, this week is expected to have a fair bit of fireworks as local employment acts as the main event on Thursday. The RBA has rested all of their policy path on the state of unemployment, and all eyes will be on that figure Thursday with a cut currently only priced at a 30% chance for next month. An increase in the unemployment rate all but locks in a cut next month and the impact on the AUD will likely weigh heavy.


AU Wages on Wednesday will also have an impact on APAC traders, while the US/China trade story and the pending election on Saturday impact sentiment. Not expecting a whole lot of moves during the Asian session today, however the CNY fix and the headlines what to watch today.


Range for the day : 0.6970 – 0.7025


AUD/USD Technicals


The pair sits around the psych level of 0.7000, with choppy trade expected until something more concrete from the US/China story breaks. Major moving averages continue to drift lower, with the 55 day sitting at 0.7084 and the 100 just above 0.7100 at 0.7107. Strong moves likely capped by the 200SMA sitting at 0.7158. Support seen at the recent lows of 0.6965/63, while further moves lower will likely test 0.6953 and 0.6924.


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