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Global Market Update
The View from Australia

Craig Killaby September 27, 2018



> EU German GFK Consumer Climate : 10.6 v. 10.6 exp.

> EU German Prelim CPI : 0.4% v. 0.1% exp.

> US August Core Durable Goods Orders : 0.1% v. 0.4% exp.

> US Q2 Final GDP : 4.2% v. 4.2% exp.

> US August Durable Goods Orders : 4.5% v. 1.9% exp.

> US Unemployment Claims : 214K v. 208K exp.


Overnight Headlines


>  Federal Reserve Chairman Jerome Powell said the central bank’s gradual interest-rate increases are helping sustain the economic expansion in remarks Thursday that repeat his message the day before

>  The Italian government set next year’s budget deficit target at 2.4 percent of output, after the ruling populist parties pressured Finance Minister Giovanni Tria into providing more funds for their election promises


What you need to know


After trading sideways for the majority of the Asian session, following the Fed’s decision to increase interest rates, it was a bout of heavy USD buying on the London open that pushed the AUD down to eye psych-support at the 0.7200 level. Investors in Asia did not know what to make of the Fed’s decision, although it was not the same in London as the GBP, EUR and AUD were all sold on the open with the news from Italy also a factor. Investors who thought that the Italian government was going to move forward with their 2019 budget in a conservative manor in relation to debt were wrong, as their deficit level came in above the 2% that was promised at 2.4%. EUR/USD was sold heavily on the news, finishing the day down 0.8% and providing even more reason to buy the Dollar post-Fed. Powell reiterated his comments from his press conference yesterday morning, ensuring markets that there will likely be no change from the reserve bank’s current policy path.


US data was also Dollar supportive, with Durable Goods orders coming in far above expectations in August and no surprises from the final Q2 GDP release. There is little doubt that the US economy is on the right path, and unless there is some significant developments in relation to trade relationships or political uncertainty there is no real reason for the Fed to pause. USD/JPY soared in overnight trade, posting fresh 2018 highs well above the 113.00 level. AUD and NZD performed poorly overnight, with both currencies down 0.7% for the day. USD/CHF the biggest mover of the day as the flows moved away from the Swiss Franc in the 24 hour trade, with AUD/CHF now comfortably above the 0.7000 level after the USD strengthened 1.2% against the CHF. US equity markets paring back the majority of yesterday’s losses, seeing the S&P500 close up near 0.3%. UST yields also moving back up slowly, with the 2y yield pushing higher 1.2bp while the 10y lagged 0.4bp. A mixed back in the commodities space, with Copper getting belted 1.8% and Gold closing the day down 1%. WTI crude able to push out some gains, up back above US$72/barrel level up 0.9%.


The Day Ahead




> AU August Private Sector Credit : 0.4% exp.

> UK Q2 Current Account : -19.4B exp.

> UK Q2 Final GDP : 0.4% exp.

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

> CA July GDP : 0.1% exp.

> US August Core PCE Price Index : 0.1% exp.

> US September Revised UoM Consumer Sentiment : 100.5 exp.


End of month and quarter flows will likely make for some choppy trade as the world looks to be scrambling for Dollars. Lack of major data during the Asian time zone will likely put the AUD under some selling pressure, with nothing to support it in this environment. Overnight it will by UK current account data and GDP, while Canadian GDP will be the highlight from NA. Tough to get a read on the AUD in early doors, but it is looking like an accentuated strong Dollar session may be on the cards. A break and hold of 0.7200 makes in very vulnerable to further downside.


Range for the day : 0.7140 – 0.7230


AUD/USD Technicals

Broad based USD strength the catalyst to push AUD down through 0.7230/40 support overnight – DON’T FIGHT THE FED. From here it would appear the path of least resistance is for AUDUSD spot to be marked lower. Immediate target is 0.7140/60 and if that gives way a return to the trend low at 0.7085 is on the cards. Rallies will now be capped at 0.7230/50 and should be sold in to if seen. Month and quarter end flows also skewing the price action so we will need to reassess the view next week.


Technical Analysis written by APAC Head of Treasury Richard Breen


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