17th July 2019 - Improvement in risk sentiment has little strength over the US-China trade tussle.

Good Morning,

Market Headlines

- US equities fell after US President Trump said he could impose more tariffs on China. US interest rates and the US dollar rose after strong US retail sales data. The combined news sent AUD/USD and NZD/USD lower

- US 2yr treasury yields rose from 1.82% to 1.87%, while 10yr yields rose from 2.08% to 2.14%. Markets continued to price 31bp of easing at the 31 July meeting.

- Australian 3yr government bond yields eked a lower range following the RBA minutes, between 0.93% and 0.96%, while 10yr yields bounced from 1.39% to 1.45%. Markets continued to price only a 15% chance of an RBA rate cut in August.

- Brent crude oil fell 2.3% to $64.55 as the Gulf of Mexico producers resumed operations following the storm, and the US and Iran signalled a willingness to talk.


- The US dollar index is up 0.4% on the day.

- EUR fell from 1.1260 to 1.1202.

- Underperformer GBP fell from 1.2515 to 1.2400 – the lowest since 2017 – amid tougher Brexit rhetoric from the two PM candidates.

- USD/JPY rose from 107.90 to 108.38.

- AUD fell from 0.7040 to 0.7012.

- NZD fell from 0.6735 to 0.6696.

- AUD/NZD ranged sideways between 1.0445 and 1.0480.

AUD Thoughts

- AUD/USD sellers cheered the US data after dovish RBA minutes.

- Improvement in risk sentiment has little strength over the US-China trade tussle.

Having witnessed initial declines on the back of the minutes from the Reserve Bank of Australia’s (RBA) latest monetary policy meeting, the Australian Dollar (AUD) had to bear the buyers’ shift towards the US Dollar (USD) amid upbeat Retail Sales data.

Pessimism surrounding the US-China trade deal also weighs on the Aussie pair as it includes Australia’s largest customer. Recently, the US President Donald Trump reiterated his hard stand against China by saying that there is a long way to go for a deal and the US could levy fresh tariffs.

With the US Retail Sales following the footsteps of early-week manufacturing gauge from the world’s largest economy, investors showed little reaction to the recently bearish Fedspeak. The US 10-year treasury yield recovers to 2.106% by the press time.

Looking forward, Australia’s June month Leading Index and the US Building Permits, Housing Starts for the same month are likely second-tier details on the economic calendar worth observing ahead of the key Australian jobs report up for publishing. The Australian gauge dropped -0.08% in its previous reading whereas the US housing market indicators show mixed signals. The Building Permits (MoM) could rise to 1.300 million from upwardly revised 1.299 million but Housing Starts might soften to 1.261 million versus 1.269 previous readouts.

Technical Outlook

Pair’s dip beneath 100-day exponential moving average (EMA) highlights the importance of 0.6983/80 support confluence comprising 21 and 50-day EMAs, a break of which can fetch prices further down to current month low around 0.6910.

Meanwhile, 0.7045/50 and 0.7070 act as nearby resistances for the quote to clear ahead of pushing buyers in the direction to 0.7100 round-figure.

Event Risk Data Today

- Australia: Jun Westpac-MI Leading index is released.

- Euro Area: Jun CPI is expected to confirm the flash estimate of 1.1% annual core inflation.

- UK: Jun CPI is anticipated to show annual headline inflation holding at 2.0% while core inflation edges back to 1.8% from 1.7%.

- US: Jun housing starts and building permits are expected to be consistent with a stabilisation in the housing market. The Federal Reserve Beige Book is released, covering conditions across the twelve districts. Fedspeak involves George on the economic outlook.

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