13th May 2019 - Deteriorating trade talk optimism puts AUD on the back foot trading below 0.70

Good Morning,

Market Headlines

- No trade deal and the increased 25% rate will apply within weeks

- US putting together the paperwork for tariffs on the other $300bn

- Kudlow hopeful that there’ll be a Trump-Xi meeting at the end June G20 Summit in Japan

- Markets waiting on China response (currency?); non-tariff trade barriers? Promised but not yet announced

- Limited reaction in early APAC time; AUD, NZD only marginally lower (10-15 pips)

- Markets still pricing for a deal

- Housing finance today and a big week for local economy/labour market news

AUD Thoughts

On Friday, we had a rather muted reaction to the Trump administration's hike in tariffs from 10% to 25% on USD200bn of Chinese imports, nor did key forecasts in the RBA Statement on Monetary Policy that were already known. AUD/USD moved a little higher as a result from 0.6985 to a high of 0.7019 although there was some weakness again into the 0.6990 area as markets positioned ahead for possible retaliation headlines from China. At the start of the week, AUD/USD is en-route for a test of the European lows of last week down at 0.6985 as weekend news paints a very different picture from what we got in trade talk comments at the end of discussions on Friday between top negotiators from both the U.S. and China:

· Beijing vows retaliation on US trade - People's Daily

· China will never concede on `issues of principle' - Global Times / Trump: We are right where we want to be with China

· Trump-Xi trade talks likely at G20 summit, says U.S. - FT

Looking ahead, "Australia’s official data this week is very important for the RBA, including Q1 wages on Wed and Apr labour force Thu. Today we see Mar housing finance approvals. The number of owner-occupier approvals is seen declining -0.5% (Westpac -1.0%)," analysts at Westpac explained.

Technical Outlook

The 20 DMA accelerated south technical indicators lack directional strength, but remain well into negative ground, consolidating near their weekly lows. Shorter termthe pair offers a neutral-to-bearish stance, seesawing around a flat 20 SMA and far below bearish larger ones, and with technical indicators heading nowhere around their midlines. The pair has a double bottom in the 0.6960 price zone, with a break below it anticipating a decline below the 0.6900 level in the upcoming sessions

Event Risk Data Today

- It’s going to be pretty much a focus on the trade issue. Is there any prospect of a deal before G20 (it sounds not), retaliatory from China, the other $300bn of Chinese imports not (yet) subject to tariffs and market/trade/economy fallout. Lots of focus on USD/CNY today too.

- Housing finance approvals for March is out today (11.30 AEST) with NAB and the market looking for a 0.5% decline in the headline number of owner-occupied loan approvals. There’ll also be close attention to the investment lending approvals that after a run of negatives since last August actually managed a modest 0.9% rise in February. A return to a decline is expected, down 1.5% in value. Housing investor credit growth has stalled, annual growth now sub 1% and still easing, already at the lowest ever.

- RBA Deputy Governor speaks this afternoon on a panel discussing ”The End of Libor and the Impact on Australian Financial Markets”, but will he be asked about the economy and monetary policy settings? That to start this afternoon at 5pm AEST.

- NZ food prices are out this morning while there are more Fed speakers scheduled for tonight.

- Looking further ahead this week, there’s the April NAB Business Survey tomorrow, Q1 wages Wednesday and the April unemployment and employment reading on Thursday. NAB looks for a rise in employment of just 5K, softer than the market’s 15K with the risk that the unemployment rate could tick up to 5.1%.

- China releases it April monthly activity indicators on Wednesday.

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