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Global Market Update
The View from Australia

Craig Killaby May 13, 2019



> AU April Home Loans : -2.5% v. 2.2% exp.


Overnight Headlines (BBG)


>  China announced plans to raise duties on some American imports starting June 1, defying a call from U.S. President Donald Trump to resist escalating a trade war

>  Trump plans to meet his Chinese counterpart Xi Jinping at next month’s G-20 summit, an encounter that could prove pivotal in the deepening trade divide


What you need to know


Markets were waiting for China’s response to the US raising tariffs on Friday, and that is what they got as China announced plans to increase tariffs on a range of US imports that will come into effect on the 1st June. The reaction from markets was immediately risk off, as havens went bid on the back of the news with JPY and CHF the best performer against the buck. CNH continued to drift lower throughout the session, down 1% against the USD. It looks as though the game has changed, and when markets looked to be lulled into a false sense of calm expecting a smooth end to the trade talks they have received the exact opposite as the tensions between the nations continue to ratchet up. The $USD60bio in tariffs announced by China may be followed by the US slapping tariffs on all of Chinese exports and throwing a massive wrench in the global growth picture. If the tensions continue, expect some easing by global Central banks to try to soften the blow with markets currently pricing in a 60% chance of a cut from the Federal Reserve in October of this year. Price action was what you would expect from a risk-off move, with the AUD and NZD the worst performers and the CAD not too far behind being sold on the sell-off in WTI crude. It was quite a rough day for global equity traders, with Chinese stocks off sharply and the S&P500 closing the day down 2.4%. Bond yields getting belted across the board, with AU yields down sharply on both the 2y and 10y, while UST yields taking a dive with near term (2y) down 7.8bp and 10s 6.6bp. Base Metals hurt by the news, as both Copper and Iron Ore off. While Gold rallied nicely up over 1% as the flight to havens buoyed the price.


The Day Ahead




> AU April NAB Business Confidence : 0 prev.

> UK March Average Earnings Index & Claimant Count Change : 3.4% & 24.2K exp.

> UK March Unemployment Rate : 3.9% exp.

> EU May German ZEW Economic Sentiment : 5.1 exp.

> US April Import Prices : 0.7% exp.

> US FOMC Member George to speak


We can expect some choppy trade this morning, with the AUD hugging the lows currently trading a notch above the 0.6940 mark. Keeping a close eye on the US/China trade story, with any headlines likely causing big moves in either direction. Overnight, UK jobs figures the highlight however it will be interesting to see if we get a rebound in equities on any sort of a positive turn in this developing story. For local traders, it is going to all kick off tomorrow with the wage number before the all-important employment report Thursday. However, with the current state of play the Aussie isn’t on solid ground.


Range for the day : 0.6900 – 0.6970


AUD/USD Technicals


The lowest level in four months saw the AUD break the recent range, with the 0.6953 61/8% fibo broken in quick fashion it is the 0.6917 level that is the next stop for the quick sliding AUD. There is no change on the resistance levels, with a break of 0.7069 needed to change the mood while the 200 DMA now sits lower at 0.7156.


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