12th December 2019 - AUD performs before and after the Fed

Updated: Dec 12, 2019


Good morning


OVERNIGHT DATA AND HEADLINES


• The U.S. Federal Reserve held interest rates steady and signalled borrowing costs are likely to remain unchanged indefinitely, with moderate economic growth and low unemployment expected to continue through next year's presidential election. "Our economic outlook remains a favourable one, despite global developments and ongoing risks," Fed Chair Jerome Powell said in a news conference following the decision. "We believe monetary policy is well positioned to serve the American people by supporting continued economic growth, a strong job market and inflation near our 2% goal." The decision by the U.S. central bank's rate-setting committee left the benchmark overnight lending rate in its current target range between 1.50% and 1.75%. There were no dissents to the policy statement, the first without opposition since the April 30-May 1 meeting.

• U.S. stocks saw a modest gain after Fed held steady on rates - Dow Jones up 7 points (0.05%) to 27,895, S&P 500 up 7 points (0.24%) to 3,139 and the Nasdaq up 30 points (0.35%) to 8,648.

CURRENCIES


• The USD fell overnight – DXY index down 0.34% to 97.07.

• CNY opened at 7.0373 and closed barely unchanged at 7.0384.

• EUR rebounded off a soft USD, climbing from 1.1070 lows up towards 1.1145 highs.

• GBP took back all of its last 24 hours of losses, bouncing from 1.3110 up towards 1.3210.

• AUD continued its climb higher reaching 0.6890 highs from a 0.6810 low overnight.

• NZD jumped higher from 0.6520 lows towards 0.6600 (minor break to see 0.6602 trade).

• AUDNZD found solid support around 1.0400, making gains higher towards 1.0450.

• AUDEUR jumped up towards 0.6190 from 0.6140 lows.


TREASURIES


• Yields on U.S. Treasury securities drifted lower following the Fed announcement and uncertainty over the UK elections and looming deadline over U.S. tariffs this weekend.

• The 10-year note fell from 1.81% down to 1.786% - the 2-year note fell from 1.64% down to 1.611%.

• The U.S. yield curve flattened for a third straight session, with the spread between the two-year and 10-year note yields at 17.7 basis points

• European government bond yields edged lower - Benchmark 10-year bond yields in Germany fell two basis points to around -0.32%, below a three-week high of -0.26% reached last week.

COMMODITIES


• Spot gold gained 0.80% to $1,475.85 per ounce, extending gains into a third straight session from previous $1,462 lows. .

• China's iron ore futures recouped early losses as a jump in bank lending spurred hopes that economic activity may see a pick-up up and boost demand. Prices for spot cargoes of iron ore with 62% iron content rose to $94.5 a tonne from $93 per tonne the previous session.

• Copper prices touched a near five-month high on hopes that the U.S. would delay imposing more trade tariffs on goods from China. LME 3 month copper ended 0.9% higher at $6,156 a tonne.

• Oil prices dropped almost 1% following a surprise build in U.S. crude inventories. Brent futures settled at $63.72 per barrel, down 62 cents. WTI crude fell 48 cents to settle at $58.76 per barrel.


ECONOMIC RISK TODAY


• Australian Economic data today : December MI inflation expectations (last 4.0%). Inflation pressures muted.

• New Zealand - October net migration (last 3440). Annual migration holding at firm levels. Nov food price index (last –0.3%). Seasonal drop in Nov, but annual growth has picked up.

• Japan - Oct machinery orders (last –2.9%, forecast 0.3%). Global manufacturing weakness persists.

• Europe - October industrial production %yr (last –1.7%, forecast –2.3%). Manufacturing the key area of weakness.

• ECB policy decision (last –0.5%). No change expected. Lagarde's first meeting and press conference.

• UK - General election - Bookies have odds of Conservatives majority at 70%.

• US - November PPI (last 0.4%, forecast 0.2%). Inflation pressures absent across economy.

• Initial jobless claims 203k – Hiring slowing, but no signs of firing accelerating.

• Canada - October new housing price index (last 0.2%) – Low interest rates are boosting demand.


AUD THOUGHTS


AUD soared overnight to a 1 month high (0.6880) on a rather dovish Fed, comments which followed soon after from Fed chair Powell, a weaker USD across the board and stronger broad commodity gains.

The key takeaways from the FOMC statement and projections were that the market has priced in virtually no chance of rate move through February. The Fed dropped language about 'uncertainties about this outlook remain'.

No changes in the economic outlook paragraph. The current stance of monetary policy is appropriate.


Yesterday’s Australian consumer sentiment index showed the index had fallen 6.1% since the RBA started cutting the cash rate in June and has been below the 100 level, indicating pessimists outnumber optimists, throughout the second half of the year. The poor performance of the index was broadly consistent with the sharp deterioration in consumer spending in the September quarter


Today – not much in the way pf domestic news and data with inflation expectations the only release.

The heat certainly picks up overnight with key releases out of ECB (policy decision), U.S. (PPI) and the long anticipated UK elections. We are now counting down to the UK election vote where results are expected to come in from around 0200 GMT onwards.


AUD is having a sharp acceleration to the upside as USD continues to sell off across the board. Resistance to the upside can be located near 0.6912 and 0.6931 levels.


TECHNICAL OUTLOOK


AUD is having a strong boost to the upside as the USD dollar is down across the board.

Bulls have taken control, AUD likely to keep advancing towards next resistance at 0.6911 and 0.6929 October 31 trend high.

Minor supports now at 0.6862 followed by 0.6842.

RSI’s now poised higher and reaching towards top levels – room to move higher in this current environment.



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