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Global Market Update
The View from Australia

Craig Killaby June 24, 2020

Data/Speakers

 

> NZ RBNZ Official Cash Rate Decision & Statement : 0.25% v. 0.25% exp.

> EU June German IFO Business Climate : 86.2 v. 85.0 exp.

> US EIA Crude Oil Inventories : 1.4M v. 1.2M prev.

 

Overnight Headlines (BBG)

 

> The U.S. is weighing new tariffs on $3.1 billion of exports from France, Germany, Spain and the U.K

> The International Monetary Fund downgraded its outlook for the coronavirus-ravaged world economy

> Canada’s long-term foreign currency debt rating was downgraded to AA+ from AAA by Fitch

> Cases of COVID-19 continue to spike across the US with Florida and California reporting their highest daily gain since the pandemic began, bringing lockdowns back on the table

 

What you need to know

 

The back and forth of risk appetite continues yet again, with the IMF dampening the mood by way of a forecast downgrade while cases of COVID-19 surge across the world as the momentum builds in the wrong direction. The session was lacking for economic data during Asia, with the highlight being the RBNZ’s interest rate decision at mid-day. The RBNZ kept policy unchanged, while the major takeaway from the statement being comments that the recent appreciation of the NZD is likely to put downward pressure on export earnings. The NZD struggled throughout the remainder of the day, with AUDNZD seeing a spike as the AUD outperformed against its APAC counterpart. The AUD looked steady above 0.6900 throughout the day, only to be sold off sharply in early London trading.

 

In Europe, the IMF downgraded their post-COVID forecasts yet again as expectations of a prolonged downtown gained steam, however Australia was able to stave off the downgrade with the IMF noting the bounce back while the case load remains low for the time being. The Dollar started to gain its haven appeal as tensions between the EU/US start to ramp up with the US threatening tariffs on a range of exports, this coming after the EU mentioned they may keep for the borders shut with the US for an extended period. Germany’s COVID-19 cases are also going in the wrong direction, up above 700 with the infection rate over the key 1% level. The UK seems to be moving ahead with the ease of lockdowns, despite the major second wave concerns pubs/restaurants are due to open on the 4th July. There is a risk that this gets pushed back if the next 10 days continue to see an uptick in cases, which seems inevitable.

 

During the US session, the USD came back into favour as risk aversion took hold amidst a significant jump in virus cases. Florida, Texas, and California seem to be in a dangerous position although the Californian Gov. commented that the state can continue to re-open in the midst of the second wave. The Dollar is up 0.6% in DXY terms, with commodity currencies struggling the most of the session. The Loonie took a hit after Fitch downgraded the country’s long term FX debt rating from AAA to AA+, with CAD down as much at 0.7% on the day against the Greenback.

 

US equity markets reversed the recent trend, having a down day on the Wall Street with nearly every industry taking a hit on the second wave fears as the S&P500 closed down 2.6%. The ASX was able to finish yesterday’s session in the green, up 0.2% although expect that to be reversed this morning after the poor lead in from across the Pacific. The story in commodities is the price of oil, as WTI dropped near 5% as demand fears stoked heavy selling while the US stockpiles gained yet again. Gold and Copper also took a slight hit, while Iron Ore continues to be supported up 2%.

 

The Day Ahead

 

Data

 

> NZ May Trade Balance : 1.27 bio exp.

> EU ECB Monetary Policy Meeting Accounts

> US May Core Durable Goods Orders & Durable Goods Orders : 2.4% & 10.3% exp.

> US Q1 Final GDP : -5.0% exp.

> US May Prelim Wholesale Inventories : 0.4% exp.

> CN Bank Holiday

 

With the overnight session dampening the mood of investors this morning, expecting that to impact optimism in Asia with a negative risk session likely on the cards. The data calendar is light today, with Kiwi trade balance numbers unlikely to move the needle. China is also off on a bank holiday for the remainder of the week, so the volume likely to be lighter than usual providing accentuated moves.

 

We will be closely monitoring the COVID-19 situation in Victoria with another rise of cases today likely to force the hand of policymakers towards more lockdowns. Overnight, ECB meeting accounts will be watched as stimulus amounts questioned following comments yesterday from ECB members. US session seeing some data, however it is all about COVID-19 second wave concerns with investors spooked by the spike in cases.

 

Range for the day : 0.6820 – 0.6915

 

AUD/USD Technicals

 

The pair is trapped in a range between 0.6800 and 0.7000 for the time being, with a break in either direction likely dependant on the scale of the COVID-19 second wave. Currently hovering around the 21DMA at 0.6870, a break lower may test yesterday’s low of 0.6859 with 0.6800 a real risk on a continued VIC spike. Inability to break through 0.6977 does not bode well for bulls with a break higher needing to see a quick turnaround in sentiment, which we have seen many times in this market.