13th February 2020 - AUD optimism grows as coronavirus concerns fade



Good morning


OVERNIGHT DATA AND HEADLINES


• China reported its lowest number of new coronavirus cases in two weeks, bolstering a forecast by Beijing's senior medical adviser for the outbreak there to end by April, but U.N. health authorities warned it could still "go in any direction". The 2,015 new confirmed cases took China's total to 44,653. That was the lowest daily rise since Jan. 30 and came a day after epidemiologist Zhong Nanshan said the epidemic should peak in China this month before subsiding. His comments helped soothe public fears and markets, where global stocks surged to record highs on hopes of an end to disruption in the world's second largest economy. But the World Health Organisation has likened the epidemic's threat to terrorism and WHO chief Tedros Adhanom Ghebreyesus warned that the apparent slowdown in the spread of the epidemic should be viewed with "extreme caution".

• The European Parliament agreed that any deal with the UK must respect a “level playing field” by updating its rules to equal those of the Union. UK PM Johnson has ruled out the EU’s proposed “dynamic alignment” of EU-UK laws.

• Stock markets around the world scaled fresh records after China reported the lowest number of new coronavirus cases since late January, boosting investor hopes the epidemic will be contained and driving up the price of crude oil and other commodities. S&P 500 and Dow Jones Industrials hit all-time highs - Dow Jones rose 0.82% to 29,516, S&P 500 gained 0.55% to 3,375 & Nasdaq up 0.84% to 9,597.


CURRENCIES

• The U.S. DXY gained 0.32% hitting fresh 4 month highs at 99.03.

• USD/JPY weakened, up 0.28% hitting 110.10.

• EUR tumbled from 1.0925 highs down 0.44% to 1.0863.

• GBP saw a smaller drop from 1.2991 down towards 1.2952 lows.

• AUD managed to preserve most of its overnight gains, reaching a 0.6750 high before falling to 0.6735 on the NY close.

• NZD reversed from its impressive 90 point run higher, falling from 0.6487 down towards 0.6460.

• AUDNZD was supported around 1.0400 after dropping 90 points on the RBNZ announcement – rebounded up towards 1.0432 highs.

• AUDEUR continued its ascent higher, hitting 0.6200 on the back of a weaker EUR.


TREASURIES


• U.S. Treasury yields rose amid renewed risk tolerance after a reported drop in the number of new coronavirus cases in China alleviated some concerns about economic growth.

• The 10-year U.S. yield was up 4 basis points in afternoon trading at 1.63%. The two-year U.S. Treasury yield was up 2.5 basis points at 1.44 % in afternoon trading.

• Greece's 10-year government bond yield fell below 1% for the first time, a milestone for the country which was bailed out three times in the last decade. Yield dropped as low as 0.97%, a tiny fraction of levels around 42% it yielded at the height of the euro zone debt crisis in 2012.

• Yields on core 10-year German government bonds were up 1.6 basis point on the day, at -0.37%


COMMODITIES


• Gold prices were steady as risk sentiment improved after a drop in the number of new coronavirus cases comforted markets - Spot gold was little changed (-0.13%) at $1,565 per ounce.

• China's iron ore futures hit a three-week high - iron ore futures on the Singapore Exchange was up 1.8% at $85.23 a tonne in afternoon trade. Spot iron ore also scaled three-week highs, with the benchmark 62% grade for delivery to China settling at $85 a tonne, amid a gradual reopening of factories.

• Copper climbed higher - Benchmark LME copper ended 0.3% higher at $5,764 a tonne.

• Oil prices rose 3% - Brent futures gained $1.78, or 3.3%, to settle at $55.79 per barrel, while U.S. WTI crude gained $1.23, or 2.5%, to settle at $51.17.


ECONOMIC DATA TODAY


• Australian Economic data today - Feb MI inflation expectations (last 4.7%). Official data highlights that inflation remains subdued.

• RBA Governor Lowe will be a panel participant, Australia–Canada forum, 11:15am

• NZ - RBNZ Governor Orr – Parliament Select Committee on MPS

• US - Jan CPI (last 0.2%, forecast 0.2%). Annual headline rate to lift, but core stable circa 2.3%yr.

• US - Initial jobless claims – (last 202k). Remain historically low.


AUD THOUGHTS


AUD remained elevated overnight in a market dominated by reports that the coronavirus outbreak seemed far more contained within China. The WHO reported that the number of cases has stabilised, although that the apparent slowdown in the epidemic spread should be viewed with "extreme caution." AUD found a brief 0.6750 high before falling back towards 0.6735 late NT close.

A ‘risk on’ environment saw commodities (copper, iron-ore, oil) lifting sharply whilst stocks & bond yields also gained. AUD also saw a lift against EUR with AUDEUR buying helping to support AUD.


Today’s local data sees Feb MI inflation expectations and Gov Lowe as a panel participant at the Australia – Canada forum. Watching for any headlines that may eventuate from this event.

The latest Coronavirus headlines will again provide a spotlight for global market movements – watching for any further developments and a continued drop in new cases to unfold.

Tonight’s main release will be U.S. CPI data for January – the monthly core inflation has shown reduced momentum lately and in December was the softest in 10 months (+0.11% m/m).


For the AUD, an improved risk sentiment surrounding the coronavirus will continue to assist moves higher. The first objective (0.6745) has been reached and all things remaining positive, the target remains for 0.6770 followed by an eventual 0.6800 breach within the week.


TECHNICAL OUTLOOK

AUD – Equities, Treasuries, Commodity gains buoy AUD near a key Fibonacci level. AUD buoyed near key Fibonacci level (0.6745) in early NY on ebbing virus concerns.

Very little pull back from day's high suggests bulls are gaining confidence. Techs lean bullish, RSIs rise, 10 day moving average (0.6712) supporting any downside.

AUD longs' optimism grows but still facing hurdles. A convincing break of 0.6745 finds resistance at 0.6767 / 0.6777 (21 day moving average).




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