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Global Market Update
The View from Australia

by Craig Killaby | July 19, 2021

Data/Speakers

 

> US July NAHB Housing Market Index : 80 v. 82 exp.

 

Overnight Headlines (BBG)

> Concerns around the Delta variant of COVID19 are starting to ramp up around the world, with the UK dropping all of their restrictions on “Freedom Day” amidst and increase of nearly 50K cases, while the US cases also ramp up as vaccinations drop off

> US President Biden sided with Fed Chairman Powell, noting the inflation surge being seen across markets is likely to be transitory

What you need to know

A very ugly opening session this week as concerns about rising cases of the COVID19 Delta variant weighed heavy on risk sentiment and saw a flood into havens. As US futures opened up to kick off the session, it seemed as though investors were positioning for a selloff, and the ASX open was not a pretty one with the index down as much as 1.5% at points in the day. Asian equity markets were off across the board, with Chinese and Japanese markets feeling the move away from risk assets and looking heavy to start the trading week. The data docket was light, and saw investors move away from risk FX pairs and into the havens with JPY and CHF two of the best performers, while the Dollar regained some of its appeal on haven buying up a marginally on the DXY Index.

 

AUDUSD is looking concerning for those wanting it higher, with concerns not only around growth prospects in AU as a large proportion of the country sits in lockdown with little path out in the near future, but globally as COVID19 cases are spiking everywhere. The Aussie touched another YTD low of 0.7322 overnight, while the NZD now sits well below the 0.7000 handle as risk appetite is sucked from the market. USDCAD is the strongest performer as the Loonie was belted following the move from OPEC+ to extend their production increases into 2022, as the price of WTI crude dropped a whopping 7.4% as supply is increased. US equity markets looking rough, with the S&P500 closing the session down 1.6% and looking very poised for a continued correction lower. The risk aversion also hit commodity markets hard, especially on the metals with both Iron ore and Copper down sharply with the latter seeing a 3% selloff.

 

The Day Ahead

 

Data

 

> JP June National Core CPI : 0.2% exp.   

> AU RBA Meeting Minutes (July Meeting)

> EU June German PPI : 1.3% exp.

> US June Building Permits : 1.69Mio exp.

> US June Housing Starts : 1.59Mio exp.

 

Eyes will be on the local RBA meeting minutes at 11:30am AEST, although the landscape seems to have shifted fundamentally in the aftermath of the decision with NSW still in a very strict lockdown and now Melbourne joining in for an extension today. The RBA may have to rethink their decision to taper their policy, as it is quite clear that we are well into the uncertain period of the back half 2021.

 

Global leaders will be looking at the UK as to what it looks like to remove restrictions, as the UK now readies for a new era of the COVID19 recovery with variants the real concern. Expecting to see heavy export demand around these levels, with the upside still capped around 0.7600 in the medium term, although unlikely with the RBA’s hawkish wings clearly clipped.

 

Range Today : 0.7320 – 0.7400

 

AUD/USD Technicals

 

Not a pretty technical picture for AUDUSD bulls, with real support not seen until the 0.7290 level, the November 2020 highs. Now looking at the fresh YTD low of 0.7322 as intraday support, however expecting a trickle higher on AUD export demand at these levels, with the key resistance now the 0.7400 handle. Not looking promising as the momentum has clearly shifted to the downside.

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