12th July 2019 - AUD loses momentum before testing 0.7000, consolidates daily gains near 0.6980

Good Morning,

Market Headlines

- Strong US CPI and a weak 30y bond auction see longer-dated yields higher (10yr yield +7.5ps and 30yr +8.2bps)

- US rate cut expectations largely unchanged (31bps priced for July), keeping shorter-dated yields anchored

- ECB Minutes reinforce likely easing ahead with “broad agreement” on being “ready and prepared to ease…monetary policy”

- Trump rails against China: “China is letting us down” with no end in sight to the US/China Trade Spat

- Equities lift again to record highs underpinned by rate cut expectations

- Coming up: China Trade, EZ Industrial Production, BoE’s Vlieghe, US PPI


- The US dollar index is down 0.1% on the day, partly recovering after the US inflation data.

- EUR initially rose from 1.1260 to 1.1286, but fell to 1.1246 after the US data.

- USD/JPY fell to 107.86 before rebounding to 108.53.

- AUD nudged higher to 0.6988 before retreating to 0.6970 for little net change.

- NZD similarly is little changed at 0.6660 after touching 0.6689.

- AUD/NZD ranged between 1.0445 and 1.0475.

AUD Thoughts

AUD/USD loses momentum before testing 0.70, consolidates daily gains near 0.6980

- Greenback recovers modestly against major rivals in the NA session.

- Annual CPI in the US edges down to 1.6% in June, core CPI rises to 2.1%.

- Coming up in the Asian session: Trade balance data from China.

The fact that there were no significant macroeconomic data releases from Australia suggests that the greenback's market valuation remains as the primary driver of the pair's price action.

Following the sharp drop witnessed on Thursday amid FOMC Chairman Powell's cautious remarks, which were seen as a confirmation of a dovish shift in the Fed's policy outlook, the US Dollar Index took advantage of today's inflation data from the U.S. and recovered above the 97 mark from the weekly low it touched at 96.80 earlier in the day.

The U.S. Bureau of Labour Statistics today reported that the Consumer Price Index on a yearly basis in June fell to 1.6% from 1.8%. However, the core CPI that strips volatile food and energy price inched higher to 2.1% to beat the market expectation of 2% and helped the greenback gain traction.

In the early trading hours of the Asian session, trade balance data from China will be looked upon for fresh impetus. The last data of the week from the U.S. will be the Producer Price Index tonight.

Technical Outlook

Having tumbled from 0.7200 mid-April to the high 0.68s mid-May as soft Australian data and RBA rhetoric pointed to a minimum of 2 cash rate cuts, AUD/USD price action has been a lot more mixed in recent weeks.

Five-year highs on iron ore prices have provided some light amid gloom for other key commodities and record short A$ positions by real money accounts in futures markets suggest plenty of bad news priced in. Increased pricing for Fed easing in response to US trade battles with China, Mexico et al also limits AUD/USD downside.

Event Risk Data Today

- NZ: REINZ housing data should be out today, as will be manufacturing PMI which in May indicated growth in the sector had stalled.

- China: A slight decrease in the trade surplus is expected in June, with a rebound in imports.

- Europe: May industrial production is anticipated to edge up 0.2% but remain 1.5% lower in annual terms. National releases have showed greater than expected monthly rebounds in France (+2.1%) and Italy (+0.9%) against mild disappointment in Germany (+0.3%).

- US: Fedspeak involves Evans on “Trade and the Heartland: From Agriculture to Manufacturing” in Chicago