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Global Market Update
The View from Australia

Craig Killaby October 10, 2018



> AU October Westpac Consumer Sentiment : 1.0% v. -3.0% prev.

> UK August GDP : 0.0% v. 0.1% exp.

> UK August Manufacturing Production : -0.2% v. 0.1% exp.

> US September PPI & Core PPI : 0.2% & 0.2% v. 0.2% & 0.2% exp.


Overnight Headlines


>  A risk-off tone gripped financial markets, with the rise in Treasury yields and fresh concerns over the trade war with China sending U.S. stocks tumbling by the most since June


What you need to know


It was a bloodbath yesterday on the US equity markets, as the reality of higher interest rates has finally started to take a significant effect on prices. The AUD did get the bounce expected in the early morning of yesterday’s Asian session, however it tried and failed to break through the 0.7130 level just prior to the London open. Prices are being dictated heavily by bond yields at the time being, as the multi-year high of the UST10y yield looks to have spooked markets as to the new reality of higher borrowing costs. Combined with some significant downgrades on the prospects of global growth from the IMF, it was a sharp risk-off session and the AUD was a major causality. The lows for the 24 hour session came this morning as the Aussie touched lows of 0.7044 as NY finished up. Commodity currencies taking heavy losses on the back of the sharp move lower in prices, with Iron ore bucking the trend and finishing 1.8% higher while both Copper and WTI crude were pushed down over 2%. Despite the fears permeating across markets around the rising UST yields they did edge lower, falling 4.3bp across the curve. As mentioned, the major story was the sharp selloff in US equities with technology stocks taking the biggest hit as the NASDAQ fell over 4% and the S&P500 3.3%. The Dollar rally was halted on the move, finishing the session down 0.5% in DXY terms. EUR and GBP also able to get a bit of a bump as the Brexit negotiations seem to be heading in a positive direction. JPY the best performer of the session, up 0.7% as the bout of risk aversion saw heavy flows into the Yen.


The Day Ahead




> US FOMC Member Bostic to speak

> AU RBA Ast. Gov Ellis to speak

> AU September MI Inflation Expectations : 4.0% prev.

> UK BOE Gov. Carney to speak

> EU ECB Monetary Policy Meeting Accounts

> US September Core CPI & CPI : 0.2% & 0.2% exp.

> US EIA Crude Oil Inventories : 2.3M exp.


With the ASX opening up significantly lower this morning and the AUD off yesterday’s highs, the optimistic picture painted in yesterday’s report is a distant memory. The move shows the vulnerability that the AUD has in the current state of play, with US inflation the next major risk on the horizon this evening. We also have the ECB’s minutes from their last meeting, although the ECB has been a distant third of late as risks to the EUR far behind Italy and Brexit. Could see a slight pullback after the 0.7% move lower for the AUD, although it is unlikely to see a move above 0.7130 on the horizon and a move below 0.7000 seems more likely at this stage.


Range for the day : 0.7020 – 0.7090


AUD/USD Technicals

The 10 day SMA at 0.7130 perfectly capped the rally in AUDUSD yesterday as AUD got caught up in the heavy equity selling across NH markets. Early morning it looked like the Aussie had held up pretty well – trading around 0.7080/90 – but late NY supply saw price push all the way back down to support at 0.7040. Unless we get a quick rebound in equity markets and therefore risk sentiment, price looks on track to set fresh trend lows and indeed may well have a 69 handle within days. Can’t stress enough that you need to be selling in to strength, whenever it comes. Resistance 0.7080/00, 0.7116 (10 day SMA), 0.7130. Support 0.7040, 0.7000, 0.6950.


Technical Analysis written by APAC Head of Treasury Richard Breen


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