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Global Market Update
The View from Australia

Craig Killaby December 9, 2018

Data/Speakers

 

> CA November Employment Change & Unemployment Rate : 94.1K & 5.6% v. 10.5K & 5.8% exp.

> US November Non-Farm Employment Change & Unemployment Rate : 155K & 3.7% v. 198K & 3.7% exp.

> US November Avg. Hourly Earnings : 0.2% v. 0.3% exp.

> US December Prelim UoM Consumer Sentiment : 97.5 v. 97.0 exp.

> CN November Trade Balance (USD) : 44.7B v. 36.2B exp.

> CN November CPI & PPI : 2.2% & 2.7% v. 2.4% & 2.8% exp.

 

Weekend Headlines (BBG)

 

>  Federal Reserve Governor Lael Brainard said U.S. economic momentum is strong and a gradual approach to interest-rate

increases remains appropriate for now

 

What you need to know

 

It was a busy week for APAC traders, which saw the RBA maintain its current wait and see approach and the concerning GDP figure mid-week likely capped the AUD bull run for the time being. The most important factor for the AUD of late has been the state of the trade relationship between the US/China and the lack of unity between the two following the 90 day trade armistice in conflicting statements. While the situation looked to be heading towards a positive conclusion, the differing delayed statements have slowly seen the optimism wane while last week’s arrest of the Huawei CFO marks another chapter in the tumultuous relationship. On Friday, it was the employment reports coming from North America with both the Canadians and Americans released their figures. It was a tale of two reports, with Canada posting a bumper report coming in nearly 84K above expectations in November while the unemployment rate also ticked down 0.2%. The Loonie surged against the Dollar following the release, up over 1% in the immediate aftermath. It was a different story in the US, as a soft wage and headline number weighed on the Dollar to finish the week.

 

The Dollar finished the week down 0.3% in DXY terms, with the EUR the biggest winner up 0.1%. In FX, the GBP continues to come under pressure as the Parliamentary vote on PM May’s deal inches closer. Sterling was down near 0.6% after the opposition leader stated that there is likely a more desirable Brexit deal to be negotiated. The much anticipated vote comes tomorrow evening AEDT, expect choppy moves until then. In US equity markets, it was another negative close with the S&P500 down 2.3% to finish the week. UST yields falling on both ends of the curve with the 10y leading the fall down 5.1bp following last week’s inversion fears ramping back up. In commodity markets, it was WTI leading the charge after OPEC agreed to a larger than expected production cut on Friday. WTI crude finished up 1.75% on the back of the agreement, hovering around the $USD53/barrel level. Base metals up slightly, while Gold pushed higher up near 1%.

 

The Day Ahead

 

Data

 

> NZ Q3 Manufacturing Sales : 2.0% v. 1.8% prev.

> AU October Home Loans : -0.5% exp.

> UK October GDP : 0.1% exp.

> UK October Manufacturing Production : 0.0% exp.

 

Likely a quiet day for APAC traders as the negative sentiment seems to weighing heavily on the AUD after posting a fresh low of 0.7172 over the weekend. Currently hovering around the 55DMA, the next direction will likely be driven by risk sentiment on the Brexit situation and risk of a sharp pare back of dropping US interest rate hike probabilities. Upside seems to be capped after that AU GDP report raised concerns on the local economy, and likely keeps the RBA on hold for the foreseeable future (not earthshattering stuff, I know). Would not be surprised to see a push higher after the sharp move lower, trading in a supply based 0.7170/0.7240 sort of range.

 

Range for the day : 0.7170 – 0.7240

 

AUD/USD Technicals

 

Nothing positive on the chart for AUDUSD as the week starts and price needs to re-claim the 55 day SMA (0.7188) quickly otherwise fresh trend lows likely in order. After the fail just ahead of the 200 day SMA last week (0.7400/20), there is not much inspiration for bulls and indeed the IB market is starting to price RBA cuts, albeit very mildly. 0.7240 the key level for me – will be selling in to that level and back to square on a daily close above. Support 0.7170/80, 0.7140, 0.7020/40. Resistance 0.7200, 0.7240, 0.7275, 0.7300.

 

Technical Analysis written by APAC Head of Treasury Richard Breen

 

 

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