16th April 2020 - AUD slides as economic pessimism hits risk assets

Good morning


  • A double whammy of economic data showing the U.S. economy in a deep downturn and reports of persistent crude oil oversupply and collapsing demand slammed global markets as vivid reminders of the damage from coronavirus-related lockdowns.

  • U.S. retail sales suffered a record drop in March and output at factories declined by the most since 1946. Retail sales plunged 8.7% last month, the biggest decline since the government started tracking the series in 1992. Data for February was revised slightly up to show retail sales slipping 0.4% instead of falling 0.5% as previously reported. Economists polled by Reuters had forecast retail sales tumbling 8.0% in March. Compared to March last year, retail sales dropped 6.2%. The $46.2 billion decrease in sales in March was almost equal in a single month to the $49.1 billion peak-to-trough decline that unfolded over 16 months in the Great Recession.

  • The Federal Reserve said on Wednesday in its April "Beige Book" report of anecdotal information on business activity collected from contacts nationwide that "economic activity contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 pandemic." 

  • U.S. manufacturing output dropped by the most in just over 74 years in March as the coronavirus pandemic fractured supply chains, suggesting business investment contracted further in the first quarter. Manufacturing production plummeted 6.3% last month, the biggest decrease since February 1946. Data for February was revised down to show output at factories slipping 0.1% instead of edging up 0.1% as previously reported. Economists polled by Reuters had forecast manufacturing output dropping 3.2% in March. Motor vehicles and parts production tumbled 28.0% last month. Business equipment output decreased 8.6%, held down by a 22.8% drop in transit equipment that reflected cutbacks in the output of both motor vehicles and civilian aircraft. Production of construction supplies fell 5.8%, while business supplies output declined 6.7%. Oil and gas well drilling fell 1.3% last month. 

  • A fourth report from the New York Fed showed factory activity in New York state slumped to a record low in April. With March data coming in severely weak, economists are estimating the economy contracted at as much as a 10.8% rate in the first quarter, which would be the steepest drop in gross domestic product since 1947.

  • The S&P 500 recoiled from a four-week high, as dire forecasts for the worst economic downturn since the Great Depression were strengthened by a crash in business activity and dismal first-quarter earnings reports. Dow Jones was down 530.24 points, or 2.21%, at 23,419.52 and the S&P 500 was down 66.52 points, or 2.34%, at 2,779.54. The Nasdaq was down 130.90 points, or 1.54%, at 8,384.85.

  • The Bank of Canada held interest rates steady at 0.25% as expected, added provincial and corporate bonds to its quantitative easing program, and said it "stands ready to adjust the scale or duration of its programs if necessary". 


  • The USD improved overnight as investors jumped from risk into safe havens. The U.S. DXY rose as high as 99.98, but had returned some of those gains to end at 99.53.

  • China CNY eased after the Chinese central bank nudged its midpoint fixing to the weak side of analyst estimates and cut a medium-term funding rate to a record low as it ramped up efforts to bolster the economy from the coronavirus hit. Onshore CNY traded softer from 7.0545 to 7.0680. 

  • Against other traditional safe-havens the dollar gained modestly: up 0.24% against the JPY (107.47) and 0.48% stronger against the CHF (0.9646). 

  • EUR initially tumbled from 1.0960 down to 1.0860 however it regained strength trading back up towards 1.0936.

  • GBP followed a similar pattern, falling down towards 1.2437, rising back to 1.2570 and ending the session softer at 1.2525.

  • AUD was smashed lower, giving up almost 4 days worth of gains to fall from a 0.6443 high down to a 0.6287 low. Slight recovery to 0.6345 into the NY close.

  • NZD was 1.77% lower, following the AUD lead as it fell from a 0.6105 peak to a 0.5955 low.

  • AUDNZD saw a minor dip as a result, falling to 1.0530, up to 1.0563 and back lower at 1.0540.

  • AUDEUR gave up some of its recent gains, the pair falling below 0.5800 towards a 0.5775 low.


  • U.S. Treasury yields fell across the board as risk aversion flared up again after data showed the coronavirus pandemic decimating U.S. consumer demand and manufacturing activity. U.S. two-year yields dropped below 0.2% for the first time in three years, while those on 10-year notes and 30-year bonds dipped to one-week lows.

  • U.S. 10-year yields fell to 0.633% from 0.75% late on Tuesday. They dropped to a one-week low of 0.625%

  • Yields on U.S. 30-year bonds were at 1.276%, down from 1.411% on Tuesday, after earlier sliding to 1.258%, also a one-week trough.

  • U.S. two-year yields were last at 0.202%, down from Tuesday's 0.225%. Earlier in the session, two-year yields sank to 0.191%, the lowest since April 2017.

  • The yield curve flattened, with the spread between the 10-year and two-year narrowing to nearly 43 basis points from 52 basis points on Tuesday. 

  • Germany's 10-year benchmark was flat at -0.458% after falling to two week low.

  • Australian 3yr government bond yields slipped from 0.28% to 0.26%, while the 10yr yield fell from 0.92% to 0.81%.


  • Gold prices fell, a day after scaling over seven-year highs, as the USD firmed and investors booked profits. Spot gold fell 0.6% to $1,716.79 per ounce.

  • Spot prices of iron ore with 62% iron content for delivery to China rose to $85.5 a tonne.

  • Copper fell as moves by China's central bank to bolster the economy were overshadowed by predictions of a deep global recession. Benchmark 3 month LME copper was down 1.1% at $5,106 a tonne.

  • Oil prices were mixed after the United States reported a 19 million-barrel jump in inventories, the biggest weekly build ever. Brent crude dropped $1.91, or 1.45% to $27.69 a barrel. U.S. West Texas Intermediate crude settled at $19.87 a barrel, shedding 24 cents, or 1.19%


  • Australia - March employment (last +26.7k, forecast -30k). The timing of the survey limits the impact of the shutdowns.

  • Australia - March unemployment (last 5.1%, forecast 5.4%). Expect to see a more significant hit in the number next month.

  • Australia - April inflation expectations (last 4.0%). Falling petrol prices should drive expectations lower.

  • Europe - Feb industrial production (last 2.3%, forecast 0.00%). Production expected to stall as headings mount.

  • Germany - March CPI (last 0.1%, forecast 0.1%). Price growth will be sluggish.

  • U.S - April Philly Fed index (last -12.7, forecast -25).

  • U.S - March housing starts (forecast -17.7%) and March building permits (forecast -10.5%). As lockdown measures bite activity will continue to seize up.

  • U.S - Initial jobless claims (job losses to persist).

AUD THOUGHTS AND TECHNICAL ANALYSIS AUD was looking extremely bullish early on yesterday, trading back above the 0.6440 handle however a dramatic turn of events saw AUD erase almost four days worth of gains in one session, falling towards an overnight low of 0.6287.  

The risk off slide started yesterday as the Peoples Bank of China chopped 20 basis points off one-year medium-term lending facility (MLF) loans to financial institutions, taking it to 2.95%, the lowest since the liquidity tool was introduced in 2014. This was followed by Australian consumer sentiment plunging 17.7% to 75.6 in April from 91.9 in March which was the single biggest monthly decline in the forty seven year history of the survey, taking the Index beyond GFC lows to levels only seen during the deep recessions of the early 1990s (64.6) and early 1980s (75.5). Overnight, dismal U.S. retail sales and manufacturing data reminded investors of the economic impact from COVID-19 which sent risk spiralling down. Equity markets fell sharply as did global bond yields. Risk-off also drove emerging market currencies lower against the USD. 

The major release today will be the Australian March ABS labour force survey. The survey was conducted in the first two weeks of the month (prior to the introduction of lockdowns and other restrictions), so the brunt of the virus’s impact may not be felt until April. The market is forecasting a drop in employment of -30k which should lift the unemployment rate to 5.4%. April MI inflation expectations will also be released today. Falling petrol prices are likely to drive expectations lower. Tonight will see the ongoing release of the weekly U.S. initial jobless claims which will continue to deteriorate as the weeks progress.

For the AUD, the fall overnight broke support near 0.6310/25 and neared trend line support (currently at 0.6273). Whilst AUD fell over 1.8% on the day, the bull trend off the March 19 low remains intact. 

The rally could be in doubt should 0.6190/0.6210 support break. Australia's March jobs report might drive a test of that support. Should results suggest the jobs market is more robust than expected the AUD rally may be likely to get back on track.

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