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Global Market Update
The View from Australia

Craig Killaby October 11, 2018



> AU September MI Inflation Expectations : 4.0% v. 4.0% prev.

> EU ECB Monetary Policy Meeting Accounts

> US September Core CPI & CPI : 0.1% & 0.1% v. 0.2% & 0.2% exp.

> US EIA Crude Oil Inventories : 5.9M v. 2.3M exp.


Overnight Headlines


>  Trump said he won’t fire Fed Chairman Jerome Powell, but blamed an “out of control” U.S. central bank for the worst stock market selloff since February

>  The U.S. Treasury’s staff has advised Secretary Steven Mnuchin that China isn’t manipulating the yuan as the Trump administration prepares a report on foreign currencies, according to people familiar with the matter


What you need to know


More of the same yesterday on equity markets as the rout continued, however slower than expected pickup in inflation from the US took the wind out of the USD rally. The Aussie was able to shake off the sharp slide in equity markets across Asia. The EU’s meeting minutes showed that the central bank is pleased with their inflation outlook across the bloc, however the risks of Italy and Brexit still linger in the background. The main move of the session came on the US’s September consumer inflation numbers, which came in a touch below expectations on both the core and headline numbers and raised a few questions for the Fed to contend with in December. The AUD was able to capitalise on the Dollar weakness, with the pair touching 0.7129 as a session high. NZD was the best performer against the Dollar, the highest one day gain for the Kiwi since May of this year. The Dollar closed the 24 hour session down 0.5% in DXY terms, as both the EUR and GBP were up on the day.  Trump was also quick to take aim at the Fed for the sharp drop in stocks, as the bull stock run of the Trump presidency looks to be coming under fire as interest rates creep higher. The S&P500 shaved another 2% off its price, with the DOW and NASDAQ also finishing down for the day. Some buying of US bonds occurring with the 10y leading the way, with yields falling 1.3bp on the day. Mixed price action in the commodities space, with Gold the biggest story up 2.5% while WTI crude continues to get hammered down on the back of larger than expected US stocks, down 2.25%.


The Day Ahead




> AU August Home Loans : -1.0% exp.

> AU RBA Financial Stability Review

> EU September German Final CPI : 0.4% exp.

> CN September Trade Balance (USD terms) : 19.3B exp.

> US September Import Prices : 0.3% exp.

> US October Prelim UoM Consumer Sentiment & Inflation Expectations : 100.4 exp. & 2.7% prev.


In early doors it looks as though the AUD is going to have a run, with the damage to the US inflation forecast having an impact this morning. Aussie home loans data the lone data release locally, while the RBA’s Financial Stability Review is likely to be a bit of a snoozefest with the reserve bank’s stance unlikely to change. Chinese Trade Balance will be the highlight for the APAC session, in particular the level of trade with the US. Light data overnight from the US, as import prices and some UoM surveys the only data of note. A break and hold above 0.7130 will be needed to change my view of a lower AUD, with 0.7200 on the cards if this takes place.


Range for the day : 0.7090 – 0.7160


AUD/USD Technicals


AUDUSD holding up extremely well in the face of plunging equity markets, particularly China. Another hold of major support at trend lows yesterday and the market clearly caught short throughout Asia and early London. Sharp rally in XAU also helping. Technically, a bullish engulfing candle formed yesterday and that on its own can allow for further gains in the short term. We note the compression of AU/US 2 and 10 year yield spreads. Resistance not far away at 0.7130 and a clear break through there targets 0.7200. We are still wary of downside risk but given how well price has held up, it seems like a squeeze might just be the path of least resistance right now. Support 0.7100, 0.7080, 0.7040. We also note that AUD vol. has not broken higher yet.

Technical Analysis written by APAC Head of Treasury Richard Breen


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