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Global Market Update
The View from Australia

Craig Killaby August 4, 2020

Data/Speakers

 

> AU June Trade Balance : 8.20bio v. 8.80bio exp.

> AU June Retail Sales : 2.7% v. 2.4% exp.

> AU RBA Rate Statement & Decision : 0.25% v. 0.25% exp (no change)

> AU June Commodity Prices : -12.0% v. -10.6% revised prev.

> EU June PPI : 0.7% v. 0.6% exp.

> CA July Manufacturing PMI : 52.9 v. 47.8 prev.

> US June Factory Orders : 6.2% v. 5.1% exp.

 

Overnight Headlines (BBG)

 

> Another round of negotiations begins on new U.S. virus relief package after recent talks yielded only a little bit of progress

> Federal Reserve’s Mary Daly says U.S. needs more support than originally thought, with pandemic weighing on growth

> Spot gold breaks through $2,000 an ounce

 

What you need to know

 

It was a relatively busy data day in Asia yesterday, with onshore trade and retail data setting the stage before the Reserve Bank’s decision in the afternoon. The morning’s data did little to move the needle with the trade numbers coming in a touch under market estimates, and the retail numbers beating by a touch in a the final print. Market reaction for the Aussie was limited, with the recent events in VIC rendering most of the data moot, with the economy in a much different position after the lockdown measures. The RBA kept their policy unchanged at 0.25%, however they have pledged to re-commence their QE program from today in an attempt to get the 3yr yield back towards 0.25%. The market may have done their job for them in the aftermath, seeing the yield fall near 4bp following the statement. The AUDUSD was bid following the meeting, rallying in early London and able to break through the 0.7150 level.

 

Overnight, there was little data in Europe although the EUR was able to recapture some gains against the Dollar and opens up a touch below the 1.1800 level. During the US session the focus is on Washington as congress scrambles to get another round of stimulus passed for the economy, with little progress made yet again. The DXY is down 0.25%, with real money sellers of the Buck overnight as the risks are pointed to the downside. The AUD was one of the best performers of the session, opening up today near 0.5% in the green. AUD crosses are all looking stronger on the currency’s outperformance, with AUDGBP up 0.5%. In equity markets, despite the second largest state going into a total lockdown the ASX finished the session up 1.9% as the RBA’s commentary that the depths of the crisis was not as bad as expected saw markets rally.

 

In the US, the S&P500 finished up 0.36% on the day and not far off pre-COVID-19 highs despite the significant headwinds. Commodities a major story overnight, with both Gold and WTI crude dragging commodity based currencies higher. Gold had a belter of a session, up over $2k USD/oz as the demand for havens continue to be strong in the wake of the Fed’s printing. WTI crude is up near 2% as investors seem to want to look past any sort of demand risks for the time being.

 

The Day Ahead

 

Data

 

> AU July AIG Construction Index : 35.5 prev.

> NZ Q2 Employment Change & Unemployment Rate : -2.0% & 5.6% exp.

> CN July Caixin Services PMI : 58.0 exp.

> EU July Final Services PMI : 55.1 exp.

> UK July Final Services PMI : 56.6 exp.

> US July ADP Non-Farm Employment Change : 1.2mio exp.

> US July ISM Non-Manufacturing PMI : 55.0 exp.

> US EIA Crude Oil Inventories : -3.4M exp.

> US FOMC Member Mester to speak

 

Today’s focus will be first thing this morning, with the Kiwis printing their Q2 employment numbers with a 2% drop in employment forecast for the quarter. Also hitting the wires today will be Chinese Caixin Services and composite PMI numbers, with a strong number likely to provide a boost to the AUDUSD.

 

We will be keeping an eye out this morning for the RBA’s foray back into the bond market, with the AU3yr yield back down to 0.256% this morning the market may have done their job for them. Overnight, the focus will be on the US congress as they edge closing to fiscal disaster with a deadlock on stimulus measures. Private payrolls and services ISM data will be the data highlight, however the Dollar remains on rocky footing as we continue the trading week.

 

Range for the day : 0.7110 – 0.7175

 

AUD/USD Technicals

 

The pair looks to be settling into a range between support at 0.7064 and the July high of 0.7227 with no real reason to break in either direction today. The 200 weekly MA is sitting at 0.7259, to there is likely to be a fair bit of resistance there and capping gains. A break of support at 0.7064 leaves 0.7038 holding up the pair. RSI still sitting in oversold territory.