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Global Market Update
The View from Australia

Craig Killaby September 17, 2020

Data/Speakers

 

> NZ Q2 GDP : -12.2% v. -12.5% exp.

> AU August Employment Change & Unemployment Rate : 111.0K & 6.8% v. -40.0K & 7.7% exp.

> JP BOJ Monetary Policy Statement & Press Conference : -0.10% v. -0.10% exp. (no change)

> UK Bank of England Official Bank Rate Decision : 0.10% v. 0.10% exp. (no change)

> CA August ADP Non-Farm Employment Change : -205.4K v. 1.149mio prev.

> US September Philly Fed Manufacturing Index : 15.0 v. 15.0 exp.

> US Unemployment Claims : 860K v. 825K exp.

 

Overnight Headlines (BBG)

 

> The Bank of England has signaled that negative rates may be on their policy agenda as the country struggles with a COVID-19 recovery amidst a disorderly Brexit

> US Congress continues to argue over the size of the next US stimulus bill while markets are skeptical that its current form will be enough to help the economy

 

What you need to know

 

Yesterday was a very busy session in terms of economic data, with the Fed kicking it off the focus was on APAC as NZ growth numbers and AU employment numbers hit the wires. The Q2 growth numbers from NZ were better than market estimates, albeit marginally, however most believe that the recession will not be as dire as initially thought with the countries ability to deal with the spread of the virus. The Kiwi was relatively muted on the print, however was able to finish the day one of the best performers against a struggling Dollar.

 

The surprise of the session was the AU August employment report, which showed a substantial increase in both full and part time employment and a drop of the unemployment rate to 6.8%. The jobs lost in VIC (40K) were offset by strong gains across the country as optimism grows about the ability to rebound from this crisis.

 

Price action for the Aussie was interesting, immediately rallying above 0.7300 on the strong print, only to fall minutes later towards the daily lows. A possible reason for investors fading the data was that a significant portion of those now classified as employed are actually self-employed sole traders, likely entering the gig economy and thus not painting the rosy picture that the headline data would suggest. The AUD touched an intraday low of 0.7254 on the London open, however was able to recover throughout the evening and open up this morning a touch above 0.7300.

 

The Bank of England kept their policy unchanged overnight, however the risks ahead for the UK economy are significant and the central bank is prepared to take action to assist in the recovery with negative rates on the table. The GBPUSD was sold off as much as 0.85% on the statement, only to recover later in the session on negative USD data.

 

The focus in the US is on the next stimulus bill, with Congress still unable to agree on a number to assist in the recovery, investors are starting to become weary with the Fed seemingly reluctant to continue buoying the economy with their tools. Spooking investor appetite was the continued number of unemployment claims with the w/w number remaining steady and showing that the recovery may have hit a slight speed bump.

 

The DXY is down on the day, back below 93.00 and finishing 0.3% in the red. Most of the majors are up against the struggling Buck, however high beta currencies are showing muted gains. Equity markets both locally and abroad had a poor session, with US futures igniting a selloff in risk during the morning of yesterday’s session following the less dovish than expected Fed. The ASX closed down 1.2% while the S&P500 finished the day 0.85% down. Mixed bag on commodity markets, as Iron Ore was able to recover some of its recent losses up 1.5% and Copper following up 0.5%. WTI crude continues its recovery, up 1.9% while Gold was the laggard down near 0.6%.

 

The Day Ahead

 

Data

 

> JP August National Core CPI : -0.4% exp.

> UK August Retail Sales : 0.8% exp.  

> CA July Core Retail Sales & Retail Sales : 0.5% & 0.8% exp.

> US September Prelim UoM Consumer Sentiment : 75.0 exp.

 

The data docket is light today, and with US equity markets seemingly having a tough start to after hours trading it may point to another whippy session for the Aussie. The correlation between US futures and the AUDUSD has been high, so this morning’s announcement from the Fed that it may extend its moratorium on bank dividends & buybacks another few weeks there is a chance of a further selloff with equity investors jittery. The close for the week above 0.7300 will be important for the medium term, failing a number of times above that level it will be key for technical traders.

 

Range for the day : 0.7255 – 0.7345

 

AUD/USD Technicals

 

Still no change to the technical picture, with the pair trading well in its recent range around the 0.7300 handle with large option expiries due to roll off this evening in NY. Upside continues to be capped at the YTD high of 0.7414, with a break and hold above 0.7345 needed to test the highs. There seems to be some support around the 0.7200 middle, with a break of the overnight low bringing 0.7191 on the table.