11th March 2020 - AUD opens lower after US yields and USD surge



Good morning


OVERNIGHT DATA AND HEADLINES


• Oil and global equity markets recovered after the prior day's shellacking as the world's biggest economies moved to cushion the impact of the coronavirus, but stock gains in Europe failed to hold as investors remained skittish.

• Wall Street rose 1% as investors pinned their hopes on policy easing by major central banks after global markets plummeted in the previous session. Dow Jones up 3.93% at 24,787, the S&P 500 up 4.00% at 2,856 & Nasdaq up 4.36% at 8,294.

• The euro zone economy grew at a snail's pace in the fourth quarter, figures on Tuesday confirmed, as investments and consumer and government spending just offset the impact of a sharp rise in imports. EU statistics office Eurostat said that gross domestic product (GDP) in the 19 countries sharing the single currency rose by just 0.1% in the Oct-Dec period, in line with its flash estimate published last month. Eurostat did though revise its figure for year-on-year growth to 1.0 from 0.9 percent. The weak quarterly growth follows a strong 0.5 percent expansion in the first quarter, expansion of just 0.1% in the second and of 0.3% in the third quarter.

• U.S. President Donald Trump said the coronavirus outbreak would "go away" and urged Americans to remain calm as cases jumped and the White House came under mounting pressure to boost its response to the health and economic crisis. A steady rise in the number of U.S. cases of COVID-19 has concerned health officials and spurred calls within Congress for action to expand testing and avert an economic meltdown. About three quarters of U.S. states now have confirmed COVID-19 with over 800 Americans infected, Washington state's governor warned of tens of thousands more cases without "real action" and New York's governor deployed National Guard troops as a containment measure in a hard-hit New York City suburb. "It will go away. Just stay calm. It will go away," Trump said after a meeting on Capitol Hill with Republican lawmakers. "We want to protect our shipping industry, our cruise industry, cruise ships. We want to protect our airlines industry."

CURRENCIES

• The USD rallied after huge losses against the JPY & CHF in the previous session, DXY index rose 1.66% to 96.47

• China’s CNY weakened against the USD - opened at 6.9430, stronger at 6.9300 however bounced back up towards 6.9580 in closing session.

• EUR whacked lower from 1.1480 highs to a 1.1273 low. Small recovery up towards 1.1305.

• GBP fell from 1.3140 highs down towards 1.2890.

• USDJPY weakened 3% from fresh 102 lows, jumping up towards a near 106.00.

• AUD weakened overnight, last down 1.52% from 0.6600 levels yesterday to a 0.6460 low. Up slightly higher into NY close at 0.6486.

• NZD also continued its descent lower, falling from 0.6360 highs to a 0.6240 low overnight.

• AUDNZD remained weak offshore, falling to 1.0326 lows but rebounding back to 1.0365.

• AUDEUR steadied somewhat, trading up from 0.5700 support to 0.5760 late NY.


TREASURIES


• U.S. Treasury yields rose from all-time lows as global oil and stock markets rebounded after huge losses on Monday fuelled by an oil price war and growing concerns over the economic impact of the coronavirus.

• The 10-year note yield was last at 0.80%, well above its new record low of 0.318%.

• Thirty-year Treasury yields, which fell to a record low of 0.702%, last traded at 1.272%.

• After tumbling to a 5-1/2-year low of 0.251%, two-year Treasury yields were trading at 0.54%.

• Germany's safe-haven government bond yields rose sharply from record-low levels on Tuesday - German government bond yields were 8 to 12 basis points higher on the day. The 10-year Bund yield slipped to -0.7%, almost 20 bps above Monday's record low.


COMMODITIES


• Gold slid over 1%, after breaching the $1,700 ceiling in the previous session, as signs of global policy easing to cushion the economic impact from the virus epidemic eased some of the investors' concerns. Spot gold lost 1.85% to $1,648 an ounce.

• Iron ore futures in China rose sharply as a drop in new virus cases in the country raised hopes for an improvement in demand, while lower inventories also aided sentiment. Iron ore stockpiles at China's ports continued to decline, down 3.4% so far this year at 126.25 million tonnes, as of March 6.

• Copper prices rebounded from more than three-year lows in the previous session as coronavirus cases dropped in China. Benchmark LME three-month copper gained 0.6% to $5,566 a tonne in final open-outcry trading after sinking to $5,433 on Monday, the weakest in more than three years.

• Oil prices jumped by more than 7%, bouncing from the biggest rout in nearly 30 years a day earlier, as the possibility of economic stimulus encouraged buying, and Russia signalled that it may yet hold talks with OPEC about cooperation on output cuts. Brent futures rose $2.49, or 7.3%, to $36.85 a barrel while U.S. West Texas Intermediate (WTI) crude rose $2.40, or 7.7%, to $33.53.


ECONOMIC DATA TODAY


• Australia - RBA Deputy Governor Debelle speaking at a Business Summit, Sydney 9am

• Australian March WBC–MI Consumer Sentiment (last 95.5). Virus shock set to dominate.

• Australian January housing finance (last 4.4%, forecast 3.0%). Resurgence in second half of 2019 has carried into early 2020.

• UK - Jan trade balance £mn (last 7715, forecast –221). 2019 a highly uncertain time for UK economy.

• US Feb CPI (last 0.1%, forecast 0.0%). Energy a negative in Feb, core prices up 0.2% in month. Feb monthly budget statement $bn –234.0 –238.5 – Deteriorating trend very clear.


AUD THOUGHTS


AUD was on the run lower overnight as the risk rebound ‘unravelled’ forcing another selloff from 0.6600 levels down towards a 0.6460 low.

The USD was extremely strong, rebounding to fresh highs with all major currency pairs recording huge losses (EUR, GBP, JPY).


Australian Prime Minister Scott Morrison said on Tuesday the government will soon announce measures to stimulate an economy hammered by the effects of the coronavirus outbreak. "Our objective is this - keep people in jobs, keep businesses in business, and ensure we bounce back stronger on the other side," Morrison said at the Australian Financial Review conference in Sydney. "We must favour measures that will lift productivity to enable the Australian economy to sustain an even stronger growth trajectory than we were on prior to the crisis."

The prime minister said the impacts from the coronavirus outbreak were "potentially greater" than the global financial crisis of 2008, and the government would soon announce a stimulus package. He did not give details. A report in the Australian newspaper on Monday said the government was planning measures worth about A$10 billion ($6.6 billion), abandoning plans for a budget surplus in the current fiscal year.


National Australia Bank's index of business conditions for February showed measures of Australian business and consumer sentiment taking a hit from coronavirus, raising the risk of the country's first recession in three decades. The total number of cases in Australia rose overnight to 100 from 80 on Tuesday, with the most populous state of New South Wales (NSW) reporting an additional seven cases, taking its tally to 54.

The coronavirus has killed nearly 4,000 people across the globe, with three deaths in Australia.


Today’s local data sees Australian consumer sentiment for March – expectations the headline result will be weaker as it takes into consideration much of the coronavirus fears which will no doubt amplify the responses on how the consumer is reacting to it.

For the AUD, poor trading once again overnight with demand expected ahead of 0.6450. Topside gains will be difficult to attain with selling interest evident at 0.6550 / 0.6570.


TECHNICAL OUTLOOK


AUD risk swings wildly, trades heavy overnight as USD remains buoyed as yields hold onto most of day's gains

AU-US yield spreads tighten a bit, Fed cut probability lowered.

AUD sinks early, slide deepens as risk rallies late in the session.

No bounce for AUD as it hovers near 23.6% technical support (0.6486)

Daily RSI’s turn downwards and open up possibility for selling to continue. Downside risk remains, minor support sits in the 0.6450/55 area.

There is little support thereafter until Monday's 0.6312 low.



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