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Global Market Update
The View from Australia

Craig Killaby August 30, 2018

Data/Speakers

 

> NZ August ANZ Business Confidence : -50.3 v. -44.9 prev.

> AU Q2 Private Capex : -2.5% v. 0.6% exp.

> AU July Building Approvals : -5.2% v. -2.2% exp.

> EU August German Prelim CPI : 0.1% v. 0.1% exp.

> CA June GDP : 0.0% v. 0.1% exp.

> US July Core PCE Price Index : 0.2% v. 0.2% exp.

> US July Personal Spending : 0.4% v. 0.4% exp.

 

Overnight Headlines

 

> Trump rejected a European Union offer to scrap tariffs on cars, likening the bloc’s trade policies to those of China.

> Trump was said to want to move ahead with a plan to impose tariffs on $200b of Chinese imports as soon as a public-comment period concludes next week

 

What you need to know

 

Unable to hold the 0.7300 figure, the AUD opens up the last day of the month on the back foot as the miss on Q2 Capex and renewed ignition of trade fears dominated the day’s headlines. It all kicked off mid-morning locally, as the NZ business confidence put both the AUD and NZD sliding after it printed the lowest in over a decade. Although it was quite the move on a confidence survey, it showed how eager the market is to be short NZD. The Q2 Capex figures missed market expectations by quite the wide margin, caused by a significant drop in both mining (-7.2%) and non-mining (-0.5%) investment in the June quarter. The saving grace for the report was that there were forecasts for an increase in spending for this FY, although worries around the political situation may hinder that notion. Nonetheless, the AUD fell 0.3% on the release and clinging on to 0.7280 for the remainder of the local session. Overnight, it was all about President Trump as he took aim at the EU, China and the WTO. Trump frankly stated that the EU’s pledge to remove tariffs on automobiles was not good enough, while threatening the WTO that he would pull out of the pact if the US was not treated more fairly. The most impactful came from the President commenting that he was planning to go ahead with the planned US$200bio in tariffs on China, reigniting the spark on the pending trade war with China. More concern in the emerging markets, as both the Brazilians and Argentinians intervened to stop their currency’s slide. Canadian GDP missed expectations, causing the Loonie to drift lower against the USD as impending NAFTA deadline (Friday) also looms.

 

The DXY finished the day up 0.1%, leading gains against the commodity pairs and EM. USD/JPY one of the biggest movers on the risk-off tone, falling 0.6% and the JPY gaining against most of the majors. Growing concern with the AUD crosses, as the currency continues to underperform against the majors with the exception of the NZD. UST yields falling across the curve, with the 2y and 10y both 2.6-2.9bp. US equity markets coming off their all-time highs, with the trade angst taking some of the bulls out for the session and the S&P500 down 0.4%. WTI crude the lone winner in major commodity markets, up 0.8%. Gold down 0.6%, while Base Metals slide led by Copper down 0.5%.

 

The Day Ahead

 

Data

 

> JP July Prelim Industrial Production : 0.3% exp.

> CN August Manufacturing PMI & Non- Manufacturing PMI : 51.0 & 53.8 exp.

> AU July HIA New Home Sales : 2.2% prev.

> EU August Core CPI Flash Estimate & CPI Flash Estimate : 1.1% & 2.1% exp.

> US August Revised UoM Consumer : 95.5 exp.

 

The last day of the month is likely to cause some choppy trade, as the jostle for corporate funding makes it difficult to predict. The data highlight will come mid-day as the Chinese PMI figures will give the market something to trade off of leading into the London session. Little tier one data overnight, headlines of NAFTA progress and anymore Trump tape bombs will cause some movement.

 

Range for the day : 0.7240 – 0.7320

 

AUD/USD Technicals

Weak domestic data (CAPEX) and trade war tape bombs the major drivers for AUDUSD right now and although pressured over the last two sessions, price still remains range bound. The key points to note from a technical perspective are a break below 0.7200 opens up the door for further downside towards at least 0.7100, but the break needs to happen first. Will buy dips towards 0.7230/50 is seen today with a stop below 0.7200. See range bound conditions persisting for now so a move back up towards 0.7350 in the short term certainly a possibility. Support 0.7250, 0.7230, 0.7200. Resistance 0.7270, 0.7300/10, 0.7350.

Technical Analysis written by APAC Head of Treasury Richard Breen

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