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Global Market Update
The View from Australia

May 20, 2020



> AU May MI Leading Index : -1.5% v. -0.7% prev.

> AU April Prelim Retail Sales : -17.9% v. 8.5% prev.

> UK April CPI & Core CPI : 0.8% & 1.4% v. 1.0% & 1.4% exp.

> CA April CPI : -0.7% v. -0.6% exp.

> EU May Consumer Confidence : -19 v. -23 exp.

> US EIA Crude Oil Inventories : -5.0M v. -0.7M prev.


Overnight Headlines (BBG)


> Fed Worries Turned to Financial Stability in April Meeting

> New Zealand’s dollar rose against most peers after central bank Governor Adrian Orr signalled that negative rates in the

nation are still some way off

> Chinese doctors are seeing the coronavirus manifest differently among patients in its new cluster of cases in the northeast region compared to the original outbreak in Wuhan, suggesting that the pathogen may be changing in unknown ways and complicating efforts to stamp it out


What you need to know


The risk rally continued yesterday, with the AUD elevated above the 0.6500 handle despite a heightening of tensions between the AU government and the Chinese on the virus investigation. The data kicked off with the release of the new preliminary retail sales numbers, of which showed a drastic difference from March’s panic buying as the numbers fell off a cliff in April. The drop of near 18% showed the severe impact that the COVID-19 induced lockdowns had on the economy, and the depths of the crisis. FX market reaction for the AUD was a slight selloff, however the comments from the RBNZ prior to release likely limited a further drop. The RBNZ Gov. discussed the notion of negative rates in NZ, however commented that they are still a ways off as markets rushed to price them in swap markets following their decision last week. The AUD and NZD were elevated on the news, and remained that way throughout the session. The AUD touched a post-COVID-19 high of 0.6616 overnight, this after a Dollar selloff in the aftermath of the FOMC meeting minutes early this morning. The minutes showed that the Fed is very concerned with the impact that COVID-19 will have on the US economy with the focus now turning from economic health to overall financial stability. The long lasting impacts of the crisis are still widely unknown, with the concerns on the banking sector top of mind as more and more businesses become insolvent as a result of the shutdowns.


The DXY is down 0.4% from yesterday, with commodity based pairs the major benefactors. US equity markets finished the day in the black, seeing the S&P500 close up 1.7% as hopes of further Fed action and elevated prices of WTI crude boosted appetite. There was some positive news out of Europe as well yesterday, with France and Germany putting forward a plan that would provide a EUR500bio recovery fund to assist the EU with the fallout from COVID-19. Although the agreement has not been signed off, it is a very positive sign for the EU as Germany departs from its longstanding ethos by providing countries that are in a less secure financial position the backing of the richer EU nations. EURUSD rallied sharply on the news, up as much as 0.73% from yesterday’s open. Elsewhere in commodities, the price of Iron Ore drifted slightly down a touch over 1.3% while Copper the story rising near 6%. Gold remains elevated up another 0.15% yesterday.


The Day Ahead




> AU May Flash Manufacturing & Services PMI : 44.1 & 19.5 prev.

> JP May Flash Manufacturing PMI : 41.9 prev.

> AU RBA Gov. Lowe to speak

> EU May German Flash Manufacturing & Services PMI : 39.3 & 26.3 exp.

> UK May Flash Manufacturing & Services PMI : 35.1 & 24.1 exp.

> US May Philly Fed Manufacturing Index : -40.0 exp.

> US Unemployment Claims : 2.4mio exp.

> US May Flash Manufacturing & Services PMI : 37.5 & 32.6 exp.

> US FOMC Member Williams to speak

> US Fed Chair Powell to speak (4:30am AEST)


It is PMI day across the sessions, with the AU flash numbers kicking it all off this morning ahead of RBA Gov. Lowe’s speech at mid-day. With the AUD only a few pips below the 0.6600 handle, the rally hinges on nothing negative from the RBA and a pare back of tensions from China. Markets seem to be ignoring the Chinese tensions, however this could come roaring back in a big way, so headline risks a focus.


Overnight, more PMI’s from Europe and the US while another set of poor job numbers are likely this evening as unemployment continues to rise in America. The US Fed Chair is due to speak early tomorrow morning, with more USD weakness the risk here as he will likely reiterate the significant headwinds the US economy is facing.


Range for the day : 0.6570 – 0.6660


AUD/USD Technicals


The pair’s rebound in the last week has been significant, as the 200DMA is well in its sights as it approaches the 0.6662 level. Support seen at the recent highs of 0.6570, with bullish momentum leaving a rally much more likely. Potential moves towards 0.6402 on a sharp change in sentiment.