11th September 2020 - AUD/USD: Depressed below 0.7300 as risk off extends


Good Morning,

Market Headlines

Equity markets flipped back to a risk averse mood, the S&P500 down 1.8%. Slightly disappointing US data and failure of the US fiscal stimulus bill overnight may have contributed, while ongoing negative factors included lofty equity valuations, Covid uncertainty, the upcoming US election, Brexit, and US-China relations. US 2yr treasury yields fluctuated between 0.14% and 0.15%, while the 10yr yield initially rose from 0.70% to 0.72% before falling to 0.68%. Commodities, Brent crude oil futures rose 2.5% to $39.80, copper fell 2.9%, iron ore fell 0.9% to $125.90, and gold fell 0.2%

Currencies

AUD/USD: 0.7248 – 0.7325

EUR/USD: 1.1810 – 1.1917

GBP/USD: 1.2773 – 1.3031

USD/JPY: 105.99 – 106.24

USD/CAD: 1.3119 – 1.3200

NZD/USD: 0.6642 – 0.6707

AUD/JPY: 76.89 – 77.74

AUD/NZD: 1.0889 – 1.0935

AUD Thoughts

- AUD/USD keeps losses from one-week high of 0.7340, signals second week of losses.

- US dollar quickly shrugged off ECB-led losses as equities dropped after further drama on stimulus package.

- Brexit pessimism, virus woes and Sino-American tussle offer background music to the bears.

- US CPI becomes the key data to watch, risk factors stay on the driver’s seat.

The market may struggle for clues as no major data/events are scheduled for publishing in Asia. As a result, the risk catalysts are the only hope, which suggests further downside of the AUD/USD prices, for traders. However, the US Consumer Price Index (CPI) for August becomes the key data to watch after PPI’s recovery. CPI is expected to moderate in August, after July’s surprise bounce (prior: 0.6%, market f/c 0.3%).

The Simple Moving Average (SMA) currently around 0.7293, has been restricting the pair’s upside since last Friday while an ascending trend line from August 03, at 0.7200 now, becomes crucial support.

Event Risk Data Today

NZ: The August manufacturing PMI data will capture the effects of reimposed COVID restrictions and follows a strong reading of 58.8 in July. REINZ housing market data meanwhile is expected to show further strength in sales and only a limited effect from restrictions (sales prior: 24.6%/yr, prices prior: 9.4%/yr). The market also anticipates that the food price index will be flat in August (prior: 1.2%)

GE: August’s CPI will again signal an absence of inflation pressures (prior and market f/c: -0.1%)

UK: The market expects the trade balance to narrow, from a deficit of GBP5336m in June to an estimated -GBP3000m in July.

US: CPI inflation is expected to moderate in August, after July’s surprise bounce (prior: 0.6%, market f/c 0.3%).


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