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Global Market Update
The View from Australia

Craig Killaby June 25, 2018


> EU June German IFO Business Climate : 101.8 v. 101.9 exp.

> US May New Home Sales : 689K v. 665K exp.

What you need to know

With no real change in the fundamentals, it was all about the ratcheting up of the trade war sparked by more comments from the US Treasury Secretary surrounding the ownership of US businesses. Risk appetite was taken out of the market during yesterday’s Asian session, as reports that the US was looking into ways to limit beneficial ownership in companies that hold “industrial specific technology” sent shock waves throughout markets. The reports, which were initially reported to be specifically geared towards Chinese investment in US companies, gave another significant reason to believe that the US is ready and willing to wage an all-out trade war. This notion was confirmed as US Press Secretary Huckabee-Sanders stated that the US was not just looking into China, but looking into all countries which hold beneficial ownership of US companies. The biggest loser of the news was the US equity markets, with the S&P500 falling 2% on the back of the reports. At the tail end of the US session, the index was able to pare back some losses as White House trade adviser Peter Navarro contradicted the reports by stating that the US has no plans to impose any sort of investment restrictions on offshore investment in American companies. The S&P500 finished the day down 1.4%, however the overarching theme from the range of reports is that these protectionist moves from the US are going to ramp up before they start to wind down. The retaliatory tariffs imposed by the EU are starting to have the opposite of President Trump’s desired effect, as Harley Davidson announced that it will be moving some of its production out of the US citing that tariffs imposed by the EU have increased from 6% to 31%, adding an average incremental const increase of $US2200/motorcycle. This is only the beginning of the knock-on effect that these tariffs will have on companies trading internationally, and if the trend continues the protectionist measures may have the opposite effect for the Trump administration. Something to note, the pivotal mid-term elections are just around the corner in the US and if companies start to move production off-shore it would not be an ideal platform for the Republicans fighting to hold on to their seats.

In FX markets, the trade angst took a hit on the commodity currencies despite the Dollar trading lower yet again and experiencing its longest losing streak since April. The Aussie traded to a low of 0.7396 overnight, despite the news that China is looking to cut their reserve requirements and investors choosing to focus on the escalating trade tensions as the main driver of sentiment. EUR/USD was the biggest winner amongst the majors, able to capitalize on the Dollar’s slide. The pair was able to hit highs of 1.1713, before paring back some gains to finish up 0.4% on the day. UST yields sliding on the risk aversion, seeing some flattening seeing as the UST10y yield fell 1.5bp. As mentioned, global equity markets performing poorly with Europe seeing heavy losses of over 2%. The ASX finished down near 1%, with sliding commodity prices the main factor. Copper the biggest loser in the commodities sector, sliding 1.7%. Gold also taking a hit down near 0.5% and WTI crude paring back gains down 0.7%.

The Day Ahead


> JP May BOJ Core CPI : 0.5% prev.

> UK MPC Members Haskel and McCafferty to speak

> US June CB Consumer Confidence : 127.6 exp.

Another quiet day expected for APAC investors, with no data catalysts on the economic calendar today. We will be keeping an eye on local and Asian equity markets to get a sign for a risk rebound. As I have mentioned, the AUD is very vulnerable to any negative headlines on trade coming from the US and China. Something that is becoming more and more prevalent after recent developments. We struggle to see a reason to buy the AUD, with a major change in the trade story needed for it to find solid support.

Range for the day : 0.7385 – 0.7430

AUD/USD Technicals

Plunging equity markets in NH halting any upside for AUDUSD overnight but we think the pair has held up very well given the magnitude of declines in stocks and Copper. Price is currently capped by the 10 day SMA at 0.7430/35 and a break above that level needed to allow a retest of 0.7480/00. We see any moves higher from here as just a counter trend correction and will be looking to short if 0.7500 is reached. Support at 0.7390/00 – a daily close below this level likely negates our view for a short term rally. Below there, support resides at 0.7374, 0.7347, 0.7330.


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Technical Analysis written by APAC Head of Treasury Richard Breen

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