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Global Market Update
The View from Australia

Craig Killaby July 30, 2020



> NZ July ANZ Business Confidence : -31.8 v. -29.8 prev.

> AU June Building Approvals : -4.9% v. -2.0% exp.

> AU Q2 Import Prices : -1.9% v. -2.5% exp.

> EU Q2 German GDP : -10.1% v. -9.0% exp.

> US Q2 Advance GDP : -32.9% v. -34.5% exp.

> US Unemployment Claims : 1.424mio v. 1.44mio exp.


Overnight Headlines (BBG)


> US GDP shrunk the most on record as the country battled the COVID-19 pandemic in Q2

> President Donald Trump raised the notion of delaying the Nov. 3 election until after the coronavirus pandemic eases, something he cannot do without the consent of lawmakers who have already rejected the idea


What you need to know


It was an interesting day of price action in financial markets as they digested the FOMC’s decision and the all-time high spike in COVID-19 cases in Victoria. The AUD looked poised to make another run at the 0.7200 handle in early trade, however the announcement in the morning of over 700 new cases of COVID-19 in Victoria seemed to take the air out of investors sails as they weigh what is likely to be a much longer than six week lockdown in Victoria. The data was light in APAC, with building approvals missing the mark by a wide margin in June as the economic slowdown weighed heavy while import prices dropped less than expected although still in the red. Local equity markets finished the session in the black as shares from the mining sector led gains and saw the ASX200 finish up 0.75%. Overnight in Europe markets got a taste of the depths of the downturn with German GDP contracting over 10% in Q2, which is likely to be the norm for most countries amidst the shutdown. The focus in the US was their growth numbers, tipped to come in at a near 35% drop in the quarter the number beat expectations by a slim margin and showed that GDP contracted a jaw dropping 32.9%.


The Dollar struggled in the session, after regaining some favour in early London, the risk-off tone later actually hurt the Buck, an interesting change as investors choose to look elsewhere for their haven plays. Also hurting the Dollar was another head scratching tweet from the President of the US Donald Trump, who threw out the idea of postponing the 2020 election in November. Trump has no authority to do so, and US congress have completely shutdown the idea. The DXY opens up today down 0.4% and below the 93.00 level, as the continued demise of the Dollar continued.


The AUD had a whippy session, trading in a wide range with a low of 0.7121 and posting a fresh high of 0.7198. The AUD crosses are looking a touch weaker with the haven flows seeing the CHF and JPY outperform while the EUR’s rally showing sustained strength and seeing it outperform yet again against the AUD. It was a bumper earnings day for the US, with technology stocks smashing their earnings estimates and showing that the tech giants have been the major beneficiaries of the shift to a remote working environment. Despite the strong performances from the top performers the S&P500 finished the session down 0.34% as the shocking drop in GDP and the rising unemployment number weighing heavy on risk appetite. Not a strong day on the commodities front, with the story being the 2.6% drop in WTI crude as the rising virus cases across the US having a negative impact on demand. Gold longs seem to be taking profit on all time highs, finishing the session down 0.6%.


The Day Ahead




> UK June GFK Consumer Confidence : -27 exp.

> CN July Manufacturing & Non-Manufacturing PMI : 50.8 & 54.5 exp.

> AU Q2 PPI : 0.2% prev.

> CA May GDP : 3.5% exp.

> US June Core PCE Price Index : 0.2% exp.

> US June Chicago PMI : 44.0 exp.

> US June Revised UoM Consumer Sentiment : 72.9 exp.

> US June Revised UoM Inflation Expectations : 3.1% prev.


Today’s focus in Asia will be the release of the Chinese PMI figures, as the health of China will be very important for an AU rebound, with mining and exports needing to lead the recovery. Not expecting PPI numbers to differ much from the CPI figures this week, showing that deflation in the quarter was the trend. In the US, the focus overnight is on the US congress as they rush to try and put together another stimulus package as unemployment benefits are set to lapse at the end of the month. A package is likely in the near term, however the gridlock in congress is hurting those impacted by the virus shutdowns the most. The Dollar selloff remains the theme, with EOM flows likely to see a choppy day of trading in Asia.


Range for the day : 0.7150 – 0.7225


AUD/USD Technicals


The pair continues to knock on the door of the key 0.7200 level, inching ever closer with a fresh YTD high this morning. A break will likely trigger a stop run and see resistance at 0.7207 broken easily, with the 0.7227 and 0.7260 levels next up on moves higher. Resistance seen at the intraday low of 0.7121, however a clear bullish bias remains.