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Global Market Update
The View from Australia

Craig Killaby July 13, 2020



> NZ June FPI : 0.5% v. -0.8% prev.

> JP May Tertiary Industry Activity : -2.1% v. -3.7% exp.


Overnight Headlines (BBG)


> Senate Republicans and the Trump administration are working on their own proposal for a new round of pandemic relief

> The U.S. posted its worst-ever budget deficit in June as federal government spending more than tripled from a year

earlier in a bid to mitigate the economic destruction caused by the coronavirus pandemic

> Restrictions in NSW are starting to tighten as pubs across the state have tougher measures are imposed following the recent outbreak of COVID-19


What you need to know


Opening up this morning in a very similar situation as yesterday, however the AUDUSD looks heavy in the midst of risk aversion and growing fears of a lockdown across NSW. The data docket was light yesterday, and the Aussie was bid higher as equity markets took the strong lead in from the weekend to start the week up near 1% as Chinese stocks trudged higher. The pair looked poised to test 0.7000 yet again, however a headline late in the session that China will impose sanctions on US officials hurt investor risk appetite and sent the Aussie lower in early London.


Overnight in Europe, the news was lacking although the EURUSD had a strong day as investors have one eye on what will be very important ECB and EU meetings at the back end of the week with further stimulus measures likely. EURUSD up as much as 0.67%, with signs of a European economic recovery and flows away from the Buck helping the Common currency. In the US, the COVID-19 situation continues to worsen with Florida posting over 15K new cases of the virus with the US having over 55K with no signs of slowing down. The tensions between the US/China do not seem to be getting much better with the US taking sides in the South China Sea showing the rapid deterioration of relations, this following Trump’s weekend comments that phase two of the trade deal is likely off the cards.


The Dollar had a whippy day of price action, hitting a monthly low before rebounding on risk aversion. Earnings from the US banks did their best to boost sentiment, while the picture of the US recovery is muddied by the recent resurgence of the virus. Lawmakers are likely to put together another round of fiscal stimulus for the US, as the continued rise in cases is putting heavy pressure on the US economy. This comes after spending data showed that the US government spending outpaced revenue by a whopping US$864bio in the month of June alone, with the government doing all they can to keep the economy afloat. The AUD is down 0.77% from its highs, with the crosses mixed as AUDEUR the worst performer down 0.5% on the surging EUR. Risk aversion seems to be the tone today, with the USD reigning as commodity backed currencies take a hit with AUD, NZD and CAD all down on the day.


US equity markets had a poor finish to their session, with the huge government spending numbers spooking markets as the reality of the sheer depth of the crisis are starting to be realised with the S&P500 down 0.94%. Copper and Iron Ore continue to rip higher, a likely reason for the AUD still being elevated above 0.6900 with Iron Ore up over 3% while Copper gaining 2% on the day. The price of WTI crude looks fragile, falling 2.5% as the spread of the virus outweighs demand. Gold up 0.2%, back up over 1800 in USD terms and proving to be resilient.


The Day Ahead




> NZ May Visitor Arrivals : -98.9% prev.

> AU June NAB Business Confidence : -20 prev.

> CN June Trade Balance : 410Bio exp.

> UK May GDP : 5.0% exp.

> EU May Industrial Production : 14.9% exp.

> EU July German ZEW Economic Sentiment : 60.1 exp.

> US June CPI & Core CPI : 0.6% & 0.1% exp.

> US FOMC Member Brainard to speak


Risk assets are looking heavy this morning, with the price action seemingly pointing to further selling as the headlines come fast and furious. The China sanctions headline saw the AUDUSD move quickly, however something that is starting to become more and more relevant is the COVID-19 outbreak situation as NSW creeps ever so close to a reimposing of restrictions. If a 2nd lockdown is on the cards for NSW, expect the impact on the AUDUSD to be swift with equity markets to lead the drop.


Chinese trade numbers are on the docket today, with NAB’s business confidence numbers nearly moot as the last two weeks has been very detrimental to business conditions/confidence following the VIC outbreak. US consumer inflation the highlight in the US, with European numbers likely to show the strong road to recovery.


Range for the day : 0.6880 – 0.6960


AUD/USD Technicals


Not anticipating a range break today, with the pair seemingly very comfortable below the 0.7000 handle for the time being with the risk headwinds prevailing. A break of the 0.6930s may see the pair test the 0.6877 level, with 0.6833 the key on a swift move lower. Upside moves still need to break through 0.7000/05 with 0.7063 still the major obstacle.