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Global Market Update
The View from Australia

Craig Killaby November 8, 2018



> CN October Trade Balance : (USD)  34.0B v. 35.0B exp.

> US Unemployment Claims : 206K v. 214K exp.

> US FOMC Meeting Statement & Decision : <2.25% exp.  


Overnight Headlines (BBG)


>  Italy rebuffed the European Commission’s projections for the public deficit, saying they “derive from an inadequate and partial analysis” of the fiscal documents the government submitted, while reiterating it won’t change its target for 2019

>  The Fed left interest rates unchanged and stayed on course to hike in December as strong economic growth, higher tariffs and rising wages look set to spur inflation


What you need to know


After the dust continues to settle on the US Mid term elections, it was the Fed that came back into focus and provided support for the Dollar to push slightly higher in the session. During Asia we had the release of the Chinese trade numbers, which showed that the trade war with the US is having little negative effect (yet) as exports to the US rose 13% in the month. This is likely to be caused by the heavy front loading of orders from US businesses readying for the tariffs. Exports were also healthy in the month, with the impact of the sliding Yuan allowing the Chinese exporters to compete by slashing prices despite the tariffs. The AUD was buoyed later in the session, pushing higher as London came in to hit a traded high just a few tics above the 0.7300 figure (0.7302). The Italian situation reared its head yet again overnight, with Brussels and Rome in a stand off on the deficit analysis done from the Italians. The EUR lead the losses against the Dollar as the tensions heighten, down 0.7% for the day. There was also some comments from a potential replacement of German Chancellor Merkel on the EUR that made investors jittery surrounding the prospects of the common currency. The major story was the Fed earlier this morning, leaving their interest rates unchanged following the meeting although this was to be expected with no press conference from the Fed’s leader Jerome Powell. There were nearly no changes in the statement from their previous meeting, signalling that a December hike is still well and truly on the table. US equity markets experiencing modest losses on the session, as the likelihood of increased borrowing costs front of mind. UST yields pushing higher across the curve, with both the 2y and 10y yield up 1-1.2 bp for the day. Iron ore the odd one out yet again in the commodities space, up 1.8% while Copper was down 0.6%. WTI crude continues to drop with the price down 1.75%. Gold down a touch over 0.2%.


The Day Ahead




> AU RBA Statement on Monetary Policy

> CN October CPI & PPI : 2.5% & 3.3% exp.

> UK September GDP : 0.2% exp.

> US Q3 Prelim GDP : 0.6% exp.  

> US October PPI & Core PPI : 0.2% & 0.2% exp.  

> US FOMC Member Quarles to speak  

> US November UoM Consumer Sentiment : 98.0 exp.  


The RBA’s SoMP to come this morning will likely be the highlight for APAC traders. The RBA seemed quite optimistic in their statement Tuesday, so it will be interesting to see what the renewed forecasts will look  like. We also have some Consumer/Product inflation numbers out of China, although market reaction likely to be limited. Overnight, it will be the UK growth figures stealing the show in Europe as the UK released their GDP for Q3 as they scramble to get a Brexit deal done. Would be expecting a slight push higher on the back of some optimism from the RBA today, although unlikely to hold the 0.7300 figure. Similar sort of range today, skewing to the upside.


Range for the day : 0.7240 – 0.7305


AUD/USD Technicals

Price running in to some resistance at 0.7300 in the last two sessions, so this is now the level to watch on the topside. A break above 0.7300 puts 0.7450/00 in to focus and we think that is a good change over the next 1-2 weeks. The overriding theme is a break of a ten month downtrend and shorts will start to fell a lot more pain above 0.7300; as a result, sharp spikes on short covering are highly likely. Buy dips down towards 0.7220/40 is seen for now. Support at 0.7240/50, 0.7200, 0.7173.


Technical Analysis written by APAC Head of Treasury Richard Breen



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