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Global Market Update
The View from Australia

Craig Killaby May 13, 2020



> AU May Westpac Consumer Sentiment : 16.4% v. -17.7% prev.

> AU Q1 Wage Price Index : 0.5% v. 0.5% exp.

> NZ RBNZ Monetary Policy Statement/Decision/Press Conference : 0.25% v. 0.25% exp.

> UK Q1 Prelim GDP : -2.0% v. -2.5% exp.

> UK March Manufacturing Production : -2.6% v. -6.0% exp.

> EU March Industrial Production : -11.3% v. -12.0% exp.

> US April Core PPI & PPI : -0.3% & -1.3% v. -0.1% & -0.4% exp.

> US EIA Crude Oil Inventories : -0.7M v. 4.6M prev.


Overnight Headlines (BBG)


> Powell Warns of Broad Virus Danger, Bats Down Negative Rates

> Trump Extends Order That Curbs Huawei’s Access to U.S. Market

> RBNZ readies financial institutions for negative rates, as swap markets price them in


What you need to know


Yet another choppy day across markets as central bank leaders took centre stage with the RBNZ and US Fed Chair Powell providing for some interesting moves. It kicked off in Asia with some positive local consumer sentiment numbers, as the signs of optimism were seen across AU consumers in WBC’s survey as lockdown restrictions are eased. The market reaction was relatively muted, as the policy decision from across the Tasman was the main event during the Asian session. The RBNZ kept their benchmark lending rate on hold, while nearly doubling their QE program. The RBNZ also reaffirmed that they are willing to do whatever it takes to support the NZ economy post COVID-19, and that includes being prepared to take rates negative. Market reaction was a very sharp selloff in the NZD against both the USD and AUD, as AUDNZD was the biggest mover on the crosses up over 1.5%. Markets have shifted their pricing to have rates negative in 2021, substantially reducing market demand to hold the NZD. The AUD remained little changed heading into the EU session, with the AUDNZD buying supporting the currency.


In the US, the focus of markets everywhere was on US Fed Chair Powell’s speech. Powell did his best to throw water on the simmering negative rate chatter, commenting that it wasn’t being looked at for the time being. Powell did not shut the door completely to the notion, focusing on highlighting the catastrophic economic impact that the virus has had on the economy. The Dollar firmed on the session, up 0.2% and paring back losses as the tensions between the US/China ramped up as Trump hit at Huawei again by imposing restrictions on the company’s access to the US market. There seems to be no backing down from the US as the negative China rhetoric comes back to the forefront, hindering risk appetite. In FX, the AUD is down against most of the majors with the exception of the NZD. US equity markets ha a tough day, with the S&P500 down 1.75% as the impact of the US/China tensions and the tampering of negative rate expectations weighing heavy. In commodities, WTI crude was supported on the news that the US crude stocks retracted this week seeing the price rise 1%. Gold remains elevated on haven flows, up 0.8%.


The Day Ahead




> NZ March Visitor Arrivals : -7.7% prev.

> AU April MI Inflation Expectations : 4.6% prev.

> AU April Employment Change & Unemployment Rate : -575.0K & 8.3% exp.

> NZ Annual Budget Release

> EU ECB Economic Bulletin

> UK Bank of England Gov. Bailey to speak

> US Unemployment Claims : 2.5mio exp.

> CA BOC Gov. Poloz to speak

> US FOMC Member Kashkari to speak


The question today will be as to whether investors can hold their nerve in the midst of some very negative data, with the employment numbers for April due to print at 11:30 AEST. Market estimates are over 500K in job losses, with the unemployment rate jumping to near 9%. This will be a key watermark for the AU policy makers, with this employment report showing just how impacted the AU labour market has been to COVID-19. Expecting the Jobkeeper package to buoy the numbers, however it is likely to be historically poor.


The NZ government is also due to release their budget around mid-day, with US unemployment claims the highlight during the US session. The ramp up of trade tensions has taken over the sentiment, with the risk aversion not likely to see the AUD perform well. Headline risks on a China response to the US is also on tap today, with moves to the downside possible.


Range for the day : 0.6380 – 0.6480


AUD/USD Technicals


With the close below the 0.6500 handle yesterday, the momentum seems to be building for the bears with the 21 DMA at 0.6422 the next support. The 50 DMA at 0.6276 should limit the major losses, however the indicators point to the pair being a touch overvalued. The 100DMA is proving touch resistance, with a break of 0.6523 needed to see another test of the recent highs of 0.6570.