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Global Market Update
The View from Australia

Craig Killaby December 3, 2018



> AU November AIG Manufacturing Index : 51.3 v. 58.3 prev.

> AU November MI Inflation Gauge : 0.0% v. 0.1% prev.

> AU October Building Approvals : -1.5% v. -1.4% exp.

> AU Q3 Company Operating Profits : 1.9% v. 2.9% exp.

> CN November Caixin Manufacturing PMI : 50.2 v. 50.1 exp.

> UK November Manufacturing PMI : 53.1 v. 51.6 exp.

> US November ISM Manufacturing PMI : 59.3 v. 57.5 exp.


Overnight Headlines (BBG)


>  U.S. Treasury Secretary Steven Mnuchin said China has agreed to eliminate tariffs on imported automobiles but declined to give details

>  The U.S. and China are “pretty close” to reaching agreement on intellectual property theft, White House economic adviser Larry Kudlow said


What you need to know


The major story of the trade truce between the US/China was the main driver of the FX price action across the sessions, with lack of clarity and slightly conflicting reports dimming the optimism a touch. It was a busy start to the week for Asia as the data points are loaded in the front half of the week prior to the Q3 GDP figure to print on Wednesday. The local data did not raise any red flags as to the state of the domestic economy, with corporate Australia posting some strong profits and signs of housing correcting to more reasonable levels the main takeaways from the data release. China’s Caixin PMI figures came in right on market expectations, with the US/China trade discussions overshadowing any data at this stage. The AUD looked poised to close a portion of the large gap from the weekend news, with more positive risk sentiment in the North American session seeing the AUD post a four month high against the Greenback at 0.7393. Oil prices helping the risk-on mood, rallying 4% as the supply concerns look to slowly decrease. The Dollar pared back some of the losses experienced over the weekend, however it was unable to hold on and finished the day down 0.2% in DXY terms. EUR largely unchanged down near 0.1%, while the GBP continued to come under pressure as we come to the pointy end of the Brexit discussions domestically down 0.35%.


US equity markets edged higher as expected following the trade news, with the S&P500 able to finish up 1%. Last night marked a major occurrence for bond markets, and financial markets as a whole as the yield curve inverted for the first time in over a decade. The inversion came on the shorter end of the curve, with the 3y and 5y bonds inverting signalling a likely slowdown from the Fed and a potential recession in the future. Although not an exact science, a yield curve inversion has been followed by a recession for the last seven instances and it has not come as a surprise. With Powell’s semi-annual testimony cancelled due to the day of mourning of the US’s 41st President Bush’s death. As mentioned, the risk-on environment had a mostly positive knock on effect to commodity markets with Iron Ore up nearly 2% while Gold also finishing the day up close to 0.9%.


The Day Ahead




> AU Q3 Current Account : -10.2B exp.

> AU RBA Interest Rate Statement & Cash Rate Decision : 1.50% exp.

> UK Bank of England Gov. Carney to speak

> UK November Construction PMI : 52.5 exp.

> US FOMC Member Williams to speak


The busy data week continues as we get the final input into tomorrow’s Q3 GDP picture with the net exports figure to print at 11:30am this morning. This afternoon, the RBA will likely keep their cash rate on hold yet again with no real changes to the statement the likely result. Overnight, the headlines on trade will move the markets and we start to edge closer to Dec 11th vote on the terms of the Brexit deal so choppy trade a result. After having a crack at the 0.7400 level last night we will need a significant bullish catalyst to have another run, positive trade headlines would likely be the only major news to push the Aussie over the edge.


Range for the day : 0.7330 – 0.7390


AUD/USD Technicals


Gap still not closed from yesterday’s open and the candle formed on its own does look somewhat bearish. Thinking it is likely that the gap will be closed short term, but as long as price remains above last week’s close (0.7306), the near term bull case remains in play. 200 day SMA at 0.7416 still remains our minimum price target and thereafter 0.7447 (38.2% Fibo), 0.7578 (50% Fibo) and 0.7710 (61.8% Fibo). Above 0.7500 should be seen as better medium to long term short entry points. Support 0.7340, 0.7300/10, 0.7285 (10 day SMA), 0.7192 (55 day SMA). Resistance 0.7390, 0.7416, 0.7450.


Technical Analysis written by APAC Head of Treasury Richard Breen


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