14th January 2020 - USD steady, AUD remains firm around 0.6900


Good morning


OVERNIGHT DATA AND HEADLINES


• The USD edged higher while a gauge of global equity markets rose, lifted by optimism over the planned signing this week of a U.S.-China trade deal and expectations the start of the U.S. corporate earnings season will not disappoint.

• The Phase 1 trade deal to be signed this week by China and the United States "stops the bleeding" but does not end the trade war, a senior U.S. Chamber of Commerce official said on Monday, warning that significant challenges remain. Myron Brilliant, the chamber's Executive Vice President, told a media briefings in the Chinese capital that there is "clearly a sigh of relief from both sides" with the agreement, expected to be signed on Wednesday in Washington, and that the depth of the Phase 1 was more positive than initially thought.

• U.S. Federal Reserve policymakers are forecasting an "almost ideal" outcome in 2020 where the U.S. labour market will stay strong and inflation will approach the central bank's 2% target, but officials should remember to consider potential risks, Boston Federal Reserve Bank President Eric Rosengren said on Monday. Among those risks is the threat that the tight labour market could lead to a sudden pickup in inflation, Rosengren said in remarks delivered to the Connecticut Business & Industry Association in Hartford, Connecticut.

• Britain's economy grew at its weakest annual pace in more than seven years in November, raising expectations that the Bank of England will cut interest rates later this month. Monday's official figures showed the economy in November was just 0.6% larger than a year before, the weakest expansion since June 2012. The November figure represented a slowdown from annual growth of 1.0% in October, after that month's growth pace was revised up from previously reported data. Output in November alone shrank by 0.3%, the biggest drop since April..

• UK’s narrower than expected Nov. trade deficit of -GBP5.2bn (ext. -GBP11.8bn) had little impact due to the weak production data.

• U.S. stock indexes hit fresh record highs on increased optimism - Dow Jones up 0.20% at 28,880, S&P 500 gained 0.57% to 3,283, Nasdaq added 0.91% to 9,261.

CURRENCIES


• The U.S DXY index initially gained towards 97.53 but fell mid-way back towards 97.30.

• GBP was the weakest performer after tepid U.K. growth saw it drop 0.45% down towards 1.2959. Recovered late session to 1.3000.

• EUR surprisingly bucked the o/night trend, jumping up from 1.1111 towards 1.1146 highs.

• CNY made five-month highs amid heavy demand ahead of the trade deal signing. CNY found a fresh 6.8835 high.

• AUD made small gains towards 0.6919, fell back to 0.6892 and then back up to 0.6916.

• NZD fell lower from 0.6652 down towards 0.6618.

• AUDNZD improved, chugging back up through 1.0400 towards 1.0423 highs.

• AUDEUR sold off 0.10% from 0.6217 towards 0.6200 levels.


TREASURIES


• U.S. Treasury yields were higher as markets shifted attention away from Middle East tensions toward the expected signing of a trade deal between the United States and China.

• U.S. 10-year yield was up 2.5 basis points to 1.85% (from 1.825%) - US 2yr treasury yields edged up to 1.585% (from 1.57%).

• Yields on Germany's 2-year government bond hit a nine-month high of -0.568 & 10-year government bond yields hit 11-day highs at -0.19%.

• Australian 3yr government bond yields were higher at 0.815%.


COMMODITIES


• Gold prices fell as risk-on sentiment dampened demand for safe-haven bullion. Spot gold fell 0.80% to $1,549 per ounce (having fallen 1% to $1,546.27 earlier in the session).

• Benchmark steel rebar futures in China fell after an industry body's forecast for the year rekindled oversupply worries. The China Iron and Steel Association expects an increasingly obvious trend of oversupply in the sector and pledges to strictly prohibit new steel capacity addition in 2020, according to state-backed China Metallurgical News. Prices for spot cargoes of iron ore with 62% iron content dropped to $94.7 per tonne.

• Copper prices hit their highest since May – LME copper ended 1.5% up at $6,290 a tonne after touching $6,291, its highest since May 1.

• Oil prices fell about 1% as Middle East tensions eased. Brent crude was down 70 cents at $64.22 per barrel & West Texas Intermediate (WTI) crude was down 65 cents at $58.39 a barrel.


ECONOMIC DATA TODAY


• No Australian Economic data today.

• US Dec CPI %yr (last 2.1%, market f/cast 2.3%). Monthly CPI f/cast to drop from 0.3% to 0.2%, core holding around 2.3%yr


AUD THOUGHTS


AUD trading remained mildly positive o/night, holding onto fresh weekend gains around 0.6900 whilst revisiting 0.6915-0.6919 highs as USD selling was evident particularly against EUR.

Risk sentiment remains buoyed: stocks, copper, AUD/JPY all rally.


No Australian Economic data out today.

The main headline tonight will be the release of U.S. December CPI which poses a risk for AUD's current bullish outlook. Should results come in above estimates concerns about slowing U.S. inflation will diminish, which should drive U.S. interest rates and the USD higher. Below-estimate results could lift AUD above 0.6920/40 and back towards December's high. U.S. retail sales data (out Thursday) will also be heavily watched. The U.S.-China Phase 1 agreement, due to be signed at the White House on Wednesday, marks the first step toward ending a damaging 18-month trade dispute between the world's two largest economies.


AUD opens just above 0.6900 - no major Economic data to digest today – more sideways trading until U.S tier 1 data releases.


TECHNICAL OUTLOOK


AUD's price action over the past two days has turned daily technicals bullish.

RSI turned up from near oversold territory and AUD is sustaining gains above the 55- and 200-DMAs.

A break of 0.6920/40 resistance, if broken, will bolster the bullish technicals.

Support levels at 0.6890 (Fibonacci & 200 day moving average). Lower support at 0.6870 and 0.6850.



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