11th June 2019 -

Good Morning,

Market Headlines

- UK GDP fell by 0.4% in April, (-0.1% expected) which was the biggest monthly fall in over 3 years. Industrial production fell by 2.7% (-1% expected) with manufacturing production lower by 3.9% (-1.4% forecast). The GDP miss was partly blamed on car production halting in anticipation of the Brexit cliff edge before the first extension was granted. GBP/USD fell to 1.2684.

- Trump making headlines in early NY trade saying that China devalues its ”currency and something has to be done” and that he expected them to make a deal as “they had to”, adding that no deal would mean more tariffs. He also said that the Fed was “destructive” in not lowering interest rates.

- US 10yr treasury yields rose from 2.12% to 2.14%, while 2yr yields ranged sideways between from 1.87% and 1.90%. Markets are pricing an 85% chance of a Fed fund rate cut by August, with a total of three cuts priced by May 2020.

- Australian 3yr government bond yields are 3bp higher at 1.09%, 10yr yields 4bp higher at 1.50%. Markets are pricing a 50% chance of an RBA rate cut at the July meeting.


- The US dollar index is up 0.2% on the day.

- EUR ranged between 1,1290 and 1.1320.

- USD/JPY slipped from 108.70 to 108.32.

- AUD extended yesterday’s USD-led fall, from 0.6975 to 0.6957.

- NZD similarly fell from 0.6635 to 0.6605.

- AUD/NZD rose from 1.0520 to 1.0535.

Equities/Commodity Markets

- FTSE +0.6% at 7376, DAX closed at 12045, CAC +0.3% at 5383, Nikkei +1.2% at 21134, ASX 200 closed at 6444, Shanghai Comp +0.9 at 2852

- Dow +0.3% at 25984, S&P +.6% at 2890, NASDAQ +1.0% at 7823

- Commodities CRY -0.2% at 174.07, Natural gas +1.0%, Cotton +0.6%, Crude Oil -1.1%, Copper +1.3%, Wheat +0.6%, Sugar 0.8% Gold at $1327/oz

AUD Thoughts/Technical Outlook

- US Dollar Index clings to daily recovery gains.

- Upbeat sentiment helps the pair limit its losses.

- Coming up: NAB's Business Confidence Index.

AUD/USD has posted considerable losses in the Monday session. On the data front, there are no major U.S. events. The sole event is JOLTS Job Openings, which is expected to tick up to 7.50 million. Australia releases NAB Business Confidence, which has posted a flat zero for two straight months. On Tuesday, the U.S. releases Producer Price Index reports, while Australia posts Westpac Consumer Sentiment.

It was a rough week for the U.S. dollar, and the Aussie took full advantage, with gains of close to 1.0%. The U.S. economy continues to perform well, but nonfarm payrolls posted its second dismal reading in four months. In May, the economy created only 75 thousand jobs, down from 263 thousand a month earlier. Wage growth was unchanged at 0.2%, shy of the estimate of 0.3%. Despite these soft job numbers, the U.S. labor market is in strong shape, and the greenback could quickly bounce back.

The Federal Reserve also weighed on the greenback, with Fed chair Jerome Powell hinting that the Fed could lower rates later this year. The Fed has sounded neutral about its next rate move, but last week’s comments from Powell and FOMC member James Bullard were clear hints that the Fed is leaning to a rate cut. The CME Group

Technical levels to watch for

The pair could face the initial support at 0.6940 (20-DMA) ahead of 0.6900 (May 31 low) and 0.6865 (May 23 low).

On the upside, resistances are located at 0.7000 (50-DMA/psychological level), 0.7050 (100-DMA) and 0.7070 (Apr. 30 high).

Event Risk Data Today

- AUS: May NAB business survey last showed conditions at +3, having trended down since mid-2018. This survey will contain post-election responses - conditions and confidence may bounce.

- Euro Area: Jun Sentix investor confidence was last at 5.3. Although the last few results have been more positive, heightened trade disputes are likely to weigh on sentiment.

- UK: Apr ILO unemployment rate is expected to hold at 3.8%.

- US: May NFIB small business optimism is anticipated to remain elevated at 102.8 from 103.5 in Apr.