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Global Market Update
The View from Australia

by Craig Killaby | October 30, 2018



> AU September Building Approvals : 3.3% v. 3.9% exp.

> EU October German Prelim Flash GDP : 0.2% v. 0.4% exp.

> US CB Consumer Confidence : 137.9 v. 136.3 exp.


Overnight Headlines


>  The risk of the U.K. leaving the European Union without a trade deal has sufficiently increased to affect the country’s

credit rating, according to S&P.


What you need to know


Despite a session that was positive for the greenback, it was the Aussie and Kiwi that were able to buck the trend and outperform the strong Dollar. The Aussie looked to bounce off of support around the mid-0.70s and trickle higher throughout the session, as positive comments from Trump on trade send the AUD up 30 pips showing how much of a swift impact a change in sentiment would be. Overnight, markets were focusing on Europe with the EU growth estimates missing the mark and putting the EUR under some selling pressure. Not helping the common currency was the market jitters from the EU commission, who have now requested that the Italians clarify their budget by November 13th. The EUR was the third worst performer against the surging USD, behind the JPY and GBP that were impacted the most by overnight price action. The GBP came under pressure as the ratings agency S&P downgraded the credit rating of the UK in the wake of the heightened risk of a no-deal Brexit. Cable fell as much as 0.8%, touching the lowest levels since August 17 commenting that a no-deal Brexit would likely result in two years of negative growth in the region. The Cable move allowed the Dollar to hit the highest level since May 2017, a fresh ytd. high for the DXY and up as much as 0.4% for the session.


The AUD and NZD bucked the strong Dollar trend, as likely short covering in the AUD/NZD crosses buoying the AUD touching a weekly high of 0.7122, while optimism that China’s stance of lowering tariffs on automobiles may have an impact on the local auto industry likely gave traders something to support their short term bullish view. UST yields rising across the curve, up near 4bp across. The Bank of Canada Gov. Poloz buoyed the Loonie in early trade today, commenting that further moves higher in rates will be needed to achieve the neutral rate. US equity markets pared back some of yesterday’s losses, up 1.6% to close the day and giving a positive lead in for the AUD. A mixed bag on the commodities front, with Copper lagging 1.5% and Iron Ore gaining 0.6%. WTI crude continues to whip around, with the price falling 0.8% this session. Gold also coming under selling pressure, down 0.5%. Interesting to see the AUD and NZD sit at their current levels, despite the commodity moves, this may indicate that the market is leaning towards higher prices in the near term.


The Day Ahead




> NZ September Building Consents : 7.8% prev.

> AU Q3 CPI : 0.5% exp.

> CN October Manufacturing PMI & Non-Manufacturing PMI : 50.6 & 54.7 exp.

> JP BOJ Monetary Policy Statement & Rate Decision : -0.10% exp.

> EU October CPI & Core CPI Flash Estimate : 2.2% & 1.1% exp.

> CA August GDP : 0.0% exp.

> US EIA Crude Oil Inventories : 3.6M exp.

> US October ADP Non-Farm Employment Change : 188K exp.


The busy session will kick off this morning with the inflation figures at 11:30am local time. Although the RBA is likely to be impacted very little by the consumer inflation numbers, any sort of gains/misses will likely spark some strong moves. Shortly after the print will be the Chinese PMI figures, and the CNY fix. The mid-day moves have been important as late and had a major impact on where the AUD will be heading for the remainder of the session. The BOJ decision will likely have no impact, while overnight Canada growth and US private payrolls will be the highlight. With such a full data calendar today, and choppy end of month flows we can expect to see a potential range break. Similar range to yesterday, on the wider side with all the data risk out there.


Range for the day : 0.7050 – 0.7130


AUD/USD Technicals


Seems to be some consolidation for the AUD around the 0.7100 figure after bouncing off of support seen at the 0.7160 level. The recent highs slightly above the 0.7110 level are acting as key resistance for the time being, while a break through of the support at the recent YTD lows would likely send the Aussie freefalling below 0.7000 figure. The market seems to be skewed for the bullish AUD run in the short term, EOM flows will likely cause for some choppy trading today.


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