11th November 2019 - AUD vulnerable to China trade deal sentiment

Good morning


• Optimism about a deal earlier in the week darkened after fierce opposition from the White House to rolling back existing tariffs surfaced on Thursday and after U.S. President Donald Trump reinforced that sentiment on Friday. Trump told reporters he has not agreed to the rollback of tariffs sought by China and that Beijing wanted to make a deal more than he did.

• Late Friday, the market knew that US President Trump hadn’t made up his mind on removing tariffs in the case a deal is made. The news spurred short-lived safe-haven demand.

• Brexit: the Scottish PM, Nicola Sturgeon, launched the SNP campaign for the general election in Edinburgh, making it clear that she will not support Boris Johnson and, at the same time, seek support for an independence referendum for Scotland. Nevertheless, the latest UK election polls published over the weekend indicated that the Conservative Party continues advantaging its rivals.

• US Treasury yields continued advancing ahead of the weekly close. The yield on the benchmark 10-year Treasury note closed at 1.94% a level last seen in July.

• Oil prices faltered and global equity markets slipped, halting a week-long record-setting rally fueled on hopes a U.S.-China trade deal was near, as the latest statements out of Washington cast fresh doubts about progress between Beijing and Washington.

• The three major U.S. stock indexes posted record closing highs. Dow Jones rose 6 points (0.02%) to 27,681, S&P 500 gained 8 points (0.26%) to 3,093 and the Nasdaq added 41 points (0.48%) to 8,475.


• The U.S. DXY rallied to a three-week high (0.23%) from 98.10 towards 98.40.

• China's yuan extended gains after the central bank guided its official midpoint above a key threshold – PBOC lifted the midpoint to 6.9945 per dollar.

• EUR fell down from 1.1050 towards 1.1015 lows.

• GBP remained rangebound for the most part before dropping down to 1.2770 but bouncing back up to 1.2800.

• JPY strengthened 0.08% at 109.22.

• AUD slipped from 0.6880 down towards 0.6845 lows.

• NZD fell from 0.6365 towards 0.6320 lows

• AUDNZD rebounded from 1.0805 lows towards 1.0845.

• AUDEUR remained firm just above 0.6210 (recorded 0.6230 highs overnight).


• U.S. Treasury yields held just below three-month highs as investors evaluated the likelihood that U.S. and China would reach a deal to roll back tariffs, officials made contradictory statements on the issue.

• Benchmark 10-year note yields rose as high as 1.97% on Thursday but fell to 1.90% on Trump's comments, before rising back to 1.930%.

• Germany's 10-year bond yield slid from five-month highs. The yield on benchmark 10-year German bunds was one basis point lower at -0.26%.


• Gold extended losses to a three-month low, putting it on track for the biggest weekly decline in three years. Spot gold was down 0.3% at $1,463.20 per ounce.

• Iron ore futures touched a three-week low on Friday and posted their second consecutive weekly decline, as prospects of tepid steel demand over winter weighed on prices. On the Singapore Exchange, the front-month December contract was down 2.2% at $78.58 a tonne. Benchmark spot 62% iron ore was steady at $83.50 a tonne, the weakest since Jan. 29 this year.

• Aluminium prices slipped from a near two-month peak - LME aluminium 0.3% to $1,807.50 a tonne. LME copper fell 0.9% to finish at $5,924 a tonne after hitting its highest in more than three months.

• Oil prices edged higher, after falling more than 1% following comments from U.S. President Donald Trump that he has not agreed to roll back tariffs on China. Brent crude futures rose 22 cents to settle at $62.51 a barrel. West Texas Intermediate (WTI) crude rose 9 cents to settle at $57.24 a barrel.


• No Australian Economic data today

• New Zealand – October REINZ house sales & prices

• Japan – September machinery orders

• China – October foreign direct investment

• U.K.- Q3 GDP

• U.S.- Veterans Day (public holiday – NYSE is open)


AUD succumbed to shifting sentiment over a U.S.-China trade deal Friday night, hitting a nine-day low at 0.6845 and threatening a break of the 10 day moving average support @ 0.6850.

AUD has been unable to successfully make any further gains above 0.6900, which were made after Wednesday's above-forecast trade data and talk of the U.S. rolling back tariffs on China.

The gains have dissipated as positive news on a China trade deal evaporated over Friday night with President Trump saying he has not agreed to rollback tariffs.

No Australian Economic data today and any new guidance will be fairly limited - weak offshore data.

A slow start to the week with the US out today commemorating the Veterans Day holiday. A flurry of releases including a data dump from China, the RBNZ monetary policy decision on Wednesday and the employment report from Australia on Thursday. Focus for Australia will be the October employment / unemployment numbers. Market forecasting 16k jobs (last 14.7k) with the unemployment rate to remain steady @ 5.2%.

The recent AUD trend had been bullish, rising 260 points from the Oct. 2 low at 0.6670 to its recent trend high 0.6930 on Oct. 31 . Without a China-U.S. trade agreement, AUD investors are likely to be left wanting.

IMM spec position data shows AUD shorts have fallen by approximately a third from -60k contracts at the end of August to current positioning near -40k.

Any positive news on China trade would likely stir further AUD short-covering, boosting AUD above recent highs and a potential to test the 200-DMA resistance (currently at 0.6947).


AUD longs lighten into weekend awaiting China trade deal - AUD weak into NY close - Bulls lighten recent longs as U.S. China trade deal proves elusive.

Supports tested at 100-DMA by 0.6850, a convincing drop from there eyes 0.6807 (55 day moving average) followed by 0.6670 (Oct 2 lows).

Resistance is back at 0.6885 followed by 0.6920 / 0.6930.

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