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Global Market Update
The View from Australia

Craig Killaby October 18, 2020

Data/Speakers

 

> EU September Final CPI & Final Core CPI : -0.3% & 0.2% v. -0.3% & 0.2% exp.

> US September Core Retail Sales & Retail Sales : 1.5% & 1.9% v. 0.4% & 0.7% exp.

> US September Industrial Production : -0.6% v. 0.6% exp.

> US October Prelim UoM Consumer Sentiment : 81.2 v. 80.2 exp.

 

Weekend Headlines (BBG)

 

> Stimulus talks between the Democrats & Republicans continue with the deadline for progress set for Tuesday in the US

> The UK’s credit rating has been downgraded by Moody’s, as the likelihood of a trade deal between the UK/EU remains unlikely following the most recent set of talks

> NZ PM Jacinda Ardern won re-election in a landslide victory, with her Labour party having a near stand along majority

 

What you need to know

 

It was another interesting week for markets, as we slowly inch closer to the US election investors are becoming wary of the state of the US recovery while stimulus talks and Brexit discussions still the dominant forces for markets. The comments from the RBA Gov. late in the week took the wind out of the AUD’s sails, with the likelihood of further easing from the Reserve Bank increasing as bond markets price in a rate cut to come next month and banks rejig their forecasts. The data docket was light in Asia, however stocks had a soft close to the week with the ASX finishing the day down 0.5% with a lack of data catalysts providing a lacklustre session.

 

In Europe, the UK/EU remain deadlocked in their negotiations for an orderly Brexit, and while it is a good sign that the talks are continuing, there does not seem to be much hope for a trade deal. The GBPUSD is hovering back around the 1.2900 handle as investors weigh up the state of the talks, further lockdowns, and the credit downgrade from the weekend.

 

In the US, the on again/off again stimulus talks remain the topic of conversation as Speaker Pelosi and UST Sec. Mnuchin are back at the negotiating table to try and iron out a deal. The best guess would be that a package will likely wait until after the election, with Biden’s big lead in the polls giving Democrats ease that a larger package can get passed with a Democratic clean sweep. The data coming out of the US Friday painted an interesting picture, with the retail sector rebounding sharply while the industrial production numbers took a surprising step in the wrong direction. The disjointed recovery out of the US continues to take shape, with the unprecedented amount of stimulus making it very difficult to analyse the true health.

 

In FX, the Buck is down a touch down 0.15% on the day as investors gained some confidence following the retail numbers. The rest of the majors are mostly down against the Dollar, with a strong sense of caution seen in most of the major pairs. The AUD is down below the 100DMA as I write this morning, off 0.2% from Friday’s opening prices. NZD is the outlier amongst the commodity based pairs, catching a slight 0.2% boost on the election result with the governing Labour party winning a stand alone majority.

 

US equity markets were able to edge out marginal gains, while local futures are tipped to see the ASX open up 0.6% higher this morning. Volatility is starting to pick up as the risks mount, with the AUDUSDV1m up 2.3% this morning. Aussie bond yields mostly down, with the longer end of the yield curve seeing the biggest moves. Not a great session on commodity markets, with the recent spike in COVID-19 cases around the world putting pressure on demand prospects. WTI crude is down 0.2%, while Copper and Gold are also softer this morning. Iron Ore remains elevated ahead of the Chinese data dump today, up 2.25%.

 

The Day Ahead

 

Data

 

> CN Q3 GDP : 5.5% exp.

> CN September Fixed Asset Investment & Industrial Production : 0.9% & 5.8% exp.

> CN September Retail Sales & Unemployment Rate : 1.7% & 5.5% exp.

> US Fed Chair Jerome Powell to speak

> US FOMC Members Clarida & Harker to speak

> EU ECB Member Lagarde to speak

 

The data docket will be focused on China’s data dump, where the growth figures for Q3 are expected to show a strong rebound from the depths of the COVID-19 pandemic. Keeping a close eye on the state of the Yuan, as the currency strengthened yet again and broke back below 6.6900 against the USD.

 

The Chair of the Fed will be on the wires this evening, and with the lack of progress on the state of the stimulus negotiations I am expecting more stimulus urgency to come from Jerome Powell. ECB’s Lagarde is also due to speak, with commentary on the second wave’s impact on the CB’s policy watched and what will the impact of an unorderly Brexit will have on their forecasts. Expecting an interesting trading week, with all the lingering negotiations coming to the pointy end. Negative results should see the AUD weaken further.

 

Range for the day : 0.7050 – 0.7120

 

AUD/USD Technicals

 

With the pair breaking through the 100DMA and holding to close out the week, more downside pressure may be on the cards as markets price in further easing from the RBA. The weekly close below 0.7100 (100DMA) may be signal that the pair is set up for a negative trading week, however the story is really dictated by the moves over in the US with the FED and US stimulus significant drivers.