14th November 2019 - AUD cautious ahead of jobs data and key support



Good morning


OVERNIGHT DATA AND HEADLINES


• Global equity markets and government bond yields fell as sentiment soured that a U.S.-China trade deal can be reached soon and on fears intensifying unrest in HK may lead to a Chinese crackdown.

• In his Q&A session, Powell reiterated that the US economy was in a good place and that the Fed remained data dependent. He noted the key to keeping the economy going was solid job creation, increasing wages and household confidence and said that the “new normal” across the world was lower inflation, lower growth and lower rates. He said that the risk of lower inflation was greater than the risk of higher inflation and on rates, he said that the Fed did not have the room it had in the past to cut rates and that negative rates were not appropriate in the current environment.

• Wall Street's main indexes turned slightly higher as Federal Reserve Chair Jerome Powell said the central bank saw a "sustained expansion" ahead for the U.S. economy.

• UK inflation in October came in at -0.2% for the month, lower than the forecast of -0.1%. Lower food and energy prices meant the annual rate of inflation fell to 1.5% which is the lowest level since late 2016.

• EZ industrial production increased by 0.1% in September, beating the expected decline of 0.2%.

• US CPI for October came in at 0.4% MoM and +1.8% YoY, both higher than expectations by 0.1%. Core measures were a touch softer though at 0.2% MoM which matched expectations due to favourable rounding while in YoY terms it was 2.3%, falling short of expectations of 2.4%.

• Risk assets were hit after trade reports surfaced of “Snag Over Farm Purchases” between China and the U.S. USD/JPY traded to a low of 108.66 while equities markets turned red.

CURRENCIES


• The USD was stable, DXY index was up 0.04% to 98.35

• EUR remained pressure, falling down from 1.1015 towards 1.0995 lows.

• GBP remained in a fairly tight 1.2825 / 1.2855 range.

• China's yuan fell to a one-week low - onshore spot CNY fell to a low of 7.0270. Offshore CNH trading at 7.0234.

• USD/JPY was lower and back on a 108 handle

• NZD consolidated its biggest daily rise this year after the RBNZ left rates on hold yesterday – remained just above 0.6400.

• AUD remained at the lower end of a 0.6822/0.6858 range.

• AUDNZD continued to track lower after its massive fall yesterday from 1.0812 down towards 1.0650 lows.

• AUDEUR broke through 0.6200 once again (0.6190 lows) but bounced back up towards 0.6210.


TREASURIES


• U.S. Treasury yields fell as optimism that the United States and China will reach a deal to remove tariffs faded, and as the recent rise in yields was seen as overdone.

• Benchmark 10-year note yields rose to 1.97%, which was the highest since August 1, and have climbed from 1.67% on November 1.

• Euro zone bond yields fell after U.S. President Donald Trump threatened China with further tariffs if it fails to sign a trade deal, dimming the optimism that has hurt bond markets in recent weeks. Most 10-year bond yields fell 4 to 6 basis points on the day.


COMMODITIES

• Gold gained as U.S. President Donald Trump's speech on the trade ties with China diminished optimism for a deal and dented risk appetite. Spot gold rose 0.5% to $1,463.70 per ounce.

• Benchmark Dalian iron ore futures jumped in morning trade, extending gains for a second session, after China's Premier Li Keqiang again vowed to ensure that key economic goals for this year are achieved. Prices for spot cargoes of benchmark iron ore with 62% iron content for delivery to China pinned at $79.5 a tonne, after diving for four sessions.

• Copper and other base metals slipped after U.S. President Donald Trump threatened more tariffs on China, disappointing investors keen for a trade deal. Three-month LME copper shed 0.6% to $5,835 a tonne.

• Oil prices edged up after OPEC said it saw no signs of global recession and rival U.S. shale oil production could grow by much less than expected in 2020. Global oil benchmark Brent futures rose 43 cents, or 0.7%, to $62.49 a barrel while U.S. West Texas Intermediate was up 45 cents, or 0.8%, at $57.25 per barrel.


ECONOMIC CALENDAR


• Australian Economic data today – October employment (last 14.7k, f/cast 16k - Jobs growth to slow from 2019 ytd avg of 25k month). Unemployment (last 5.2%, f/cast 5.2%). Upward pressure expected.

• Japan – Q3 GDP

• China – October fixed asset investment, October industrial production, October retail sales.

• Europe – Q3 GDP 2nd estimate (last 0.2%, f/cast 0.2%)

• Europe – Q3 employment

• U.K. – October retail sales

• U.S. – October PPI, initial jobless claims, Fedspeak from Powell, Clarida, Evans, Daly, Williams and Bullard.

• Canada – Sep new housing price index.


AUD THOUGHTS


AUD remained under pressure overnight, finding fresh lows down at 0.6818 and unable to break above the 0.6850 level mild resistance.

Rising concerns about U.S.-Sino trade have left AUD in sell-the-rallies mode after U.S. President Trump's comments yesterday. Safe haven flows have sent emerging market and high beta currencies lower vs. the USD as a result of the comments.


Today we have Australian employment / unemployment data (released at 11.30am). The market expecting around 16k jobs and unemployment rate to remain @ 5.2%. Wildcard event so as always expect the unexpected. Markets will be looking to sell down AUD harder if result err’s on the downside to break supports at 0.6810, 0.6800 and downwards to 0.67 handles.

A raft of data out today from China and offshore events, Fed speakers.


The failure of AUD’s rally, after reaching the 21-DMA (0.6857) on the surprise RBNZ rate hold, illustrated this. AUD has since reversed course, sliding to a 12-day low.

The CNY (which is highly correlated to AUD), weakened, driving USD/CNH above 7.0200. Australian government 10-year bond yields fell sharply and now threaten old resistance-turned-support near 1.2%. If yields break below 1.2% it could drive AUD below those supports.


TECHNICAL OUTLOOK


AUD continues to trade in a bear trend below its 100 and 200-day simple moving averages (DMAs) on the daily chart.

AUD shorts remain cautious ahead of key support - in the form of the Oct. 25 0.6810 low and 55-DMA. USD/CNH gains and EM ccy sales vs the USD also help temper AUD's bounce.

Big supports remain in play, a break could target 2019's low.

Technicals suggest that AUD has a good chance to break that support as RSIs are biased down while the 10- and 21-DMAs exert downside pressure.

A break below 0.6810/15 is likely to trigger stop losses. AUD shorts will then target support near 0.6750/55 and 0.6710/25. A break of the latter should result in a test of 2019's 0.6670 low.




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