17th May 2019 - AUD falls to a 3 year low on the back of employment data and concerns of rate cuts

Good Morning,


Market Headlines

-Sentiment in equity markets remained upbeat, the S&P500 currently up 1.1%, despite the Trump Administration’s attack on Chinese firm Huawei. Bond yields and the USD also rose, helped by a solid batch of US economic data.


- The US 10yr treasury yield rose from 2.35% to 2.41% and the 2yr yield rose from 2.15% to 2.21%.


- The chance of a Fed rate cut by December, implied by Fed fund futures, fell from 130% to 120%, with September priced at 60% .

- AU 3yr bond yields, though, remained subdued at around 1.18%, following RBA-watcher McCrann’s prediction the RBA would ease in June


- Wall Street closed higher as upbeat earnings and strong economic data put investors in a buying mood, with technology companies leading the charge. Dow Jones rose 214.66 points (0.84%) to 25,862.68, the S&P 500 gained 25.36 points (0.89%) to 2,876.32 and the Nasdaq added 75.90 points, or 0.97%, to 7,898.05.


- Gold was headed for its biggest one-day percentage decline in a month, as the USD gained and investors opted for riskier assets on the back of robust U.S. economic data. Spot gold fell 0.8% to $1,285.63 per ounce


- China's benchmark iron ore futures jumped to a record high, rising along with the rest of the country's ferrous complex on robust demand for the steelmaking feedstock amid falling stocks. Spot iron ore prices jumped up towards $97.50.


- Aluminium prices climbed to 2 week highs after news of production shutdowns at one of the country's biggest smelters - LME aluminium ended up 0.3% at $1,860 a tonne. LME Copper gained 0.2% to $6,100 a tonne


- Oil futures were up more than 1% as tensions in the Middle East grew, with a Saudi-led coalition launching air strikes in retaliation for recent attacks on its crude infrastructure. Brent crude futures settled at $72.62 a barrel, up 85 cents, or 1.18%, after touching their highest level in three weeks. U.S. West Texas Intermediate (WTI) crude futures settled at $62.87 a barrel, gaining 81 cents, or 1.37%, after hitting its strongest level in two weeks.


Currencies

- The US dollar index is up 0.3% on the day, closing @ 97.83.EUR fell from 1.1220 to 1.1170.

- GBP was the worst performer, falling from 1.2850 to 1.2788, amid a tense UK political situation.

- USD/JPY rose from 109.35 to 109.97.

- AUD extended its multi-week decline from 0.6930 to 0.6887 – 3 year low.

- NZD fell from 0.6580 to 0.6532. AUD/NZD probed lower, to 1.0522.AUD/EUR fell lower towards 0.6160 lows


AUD Thoughts

AUD skidded to a fresh four-month trough after data showed an unwelcome rise in the jobless rate and narrowed the odds for a cut in interest rates, perhaps as early as June.

AUD was hunched at 0.6914, having fallen to 0.6893, the lowest since the flash crash of early January. The last time the AUD spent more than a day at these depths was in early 2016 when it got as far as 0.6827.


The damage was done when data showed Australia's jobless rate rose to 5.2% in April, above forecasts of 5.1% and up from 4.9% just two months previously. The rise came even though the economy generated a strong 28,400 jobs in the month.


No Australian Economic data today – further AUD direction to be guided through market positioning & further offshore developments.

AUD continues to make good progress towards the 0.6852 objective, 76.4% Fibo of Jan rise. Article this morning gaining traction around Herald Sun's McCrann saying the RBA will cut in 18 days.


Short-term interest rates market prices in 75% chance of 0.25% cut June 4. AU-U.S. yield spreads widen on diverging RBA-Fed rate expectations. Trade talks optimism fades, Huawei ban rekindles trade tensions


Technical Outlook

AUD heavy in NY, upbeat US econ data & McCrann article weigh. Rallies in stocks, oil & iron-ore temper the slide. USD/CNH break to a new 2-month high keeps AUD near day's low.

Techs favour bears; RSIs drop, new low set & psychological 0.6900 level breaks. Bears tightly grip on AUD but progress to be hard fought.


Little support until January's flash crash low at 0.6715, bears in control. 0.6850 barrier to give some support.


Event Risk Data Today

- No Australian Economic data today


-NZ: manufacturing PMI remains in expansionary territory (just) but has slowed over the past year. Q1 PPI data had been superseded by Q1 CPI data.


- US: May University of Michigan consumer sentiment is released. Fedspeak involves Williams speaking to community leaders and Clarida at a Fed Listens event.

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