OVERNIGHT HEADLINES & DATA
• US - Presidents Day - Federal holiday - markets were closed.
• Global shares were buoyant as the promise of further policy stimulus from China to counteract the economic hit from a coronavirus outbreak calmed nervous investors.
• The U.S. DXY index was solid on Presidents Day holiday, staving off selling interest below 99.00 to trade up towards 99.20.
• EUR struggled near 3-year lows as investors were worried about weakening growth in the region. EUR fell lower from 1.0850 down towards 1.0827.
• GBP fell from 1.3050 highs down towards 1.3000.
• CNY firmed slightly as China's policymakers signalled more support for the economy and businesses to offset some of the impact from the coronavirus outbreak. CNY rose 0.17% to 6.9710 however closed weaker at 6.9810.
• AUD was left adrift as markets awaited some clarity on whether the coronavirus was being contained or not, while a steady outlook for domestic interest rates offered some support. AUD held firm around 0.6715.
• NZD found some buying interest from 0.6418 lows up towards 0.6442.
• AUDNZD struggled to make further gains from 1.0465 highs, dropping down towards 1.0430 late into the session.
• AUDEUR capitalised on further EUR weakness, trading just under 0.6200 for the overnight session.
• US - Presidents Day - Federal holiday – interest markets were closed.
• Government bond yields in the euro area were mostly steady, reflecting a strong degree of caution caused by the coronavirus outbreak. Germany's 10-year bond yield was steady at -0.40%, having risen to -0.378% earlier.
• Gold prices eased in a thin volume trade as risk appetite improved after China took further efforts to limit the economic impact from the coronavirus outbreak. Spot gold was down 0.22% at $1,580.80 per ounce.
• Iron ore futures in China extended gains to a fifth straight session, underpinned further by data showing a drop in stocks of the steelmaking raw material at the country's ports, and after the central bank cut its medium-term lending rate. Supply concerns have also lifted spot prices, with the benchmark 62% iron-content ore settling at a three-week-high $88.50 a tonne.
• Copper prices climbed to three-week peaks after China cut interest rates to offset the economic damage from the coronavirus, though worries over demand for industrial metals capped gains. Benchmark LME copper was untraded at the close but bid up 0.9% to $5,811 a tonne.
• Oil prices inched up as concerns over the economic fallout from the coronavirus outbreak in China were offset by expectations that potential production cuts from major producers could tighten global crude supply. Brent crude was at $57.59 a barrel, up 27 cents. U.S. West Texas Intermediate crude was up 23 cents to $52.28 a barrel, after a 3.4% gain last week.
ECONOMIC RELEASES TODAY
• No Australian Economic releases today however the RBA minutes will be released – watching for the Board's discussion of (downside) risks of interest.
• Europe - Feb ZEW survey of expectations. Market participants to remain optimistic despite risks.
• UK - Dec ILO unemployment rate (last 3.8%, forecast 3.8%). Labour market remains strong.
• US - Feb Fed Empire state index (last 4.8, forecast 5.0). US manufacturers facing uncertain times.
• Feb NAHB housing market index (last 75, forecast 75). Home builders benefitting from labour market & rates.
Trading volumes were thin due to the U.S. Presidents Day holiday with price action in the AUD contained to a 10 point range overnight, trading in and around 0.6715/0.6725.
The USD continues to see an active interest with investors piling in and keeping it afloat at lofty levels. The USD index last week broke and registered a weekly close above its key resistance levels.
Coupled with a weaker EUR (the largest component of the USD index), a bid tone remains firm under the USD and on track to record further gains into the week.
Markets remain focused on the coronavirus, while release of the Federal Reserve meeting minutes (Wednesday night) and flash euro zone PMI data (Friday night) looms this week.
Locally today we have the release of the RBA minutes. The transcript from the first meeting for 2020 may highlight a wait-and-see approach as the “central scenario is for the Australian economy to grow by around 2¾% this year and 3% next year,” and the RBA may attempt to buy more time at its next meeting on March 3 amid “signs that the slowdown in global growth that started in 2018 is coming to an end.” The minutes may keep AUD afloat as the central bank tames speculation for lower interest rates and emphasises that “the easing of monetary policy last year is supporting employment and income growth in Australia and a return of inflation to the medium-term target range.”
Developments in global commodity markets highlight both the immediate loss from coronavirus as well as the risks to global production. FX markets view this uncertainty as being contained in Asia, arguably because central banks elsewhere are seen as both willing and able to act.
This is particularly the case for the US which has received a solid bid as a safe-haven. While the AUD has taken a tumble in line with commodities, it will likely find a base and has the potential to strengthen further.
For today, AUD to remain supported above 0.6700 and capped ahead of 0.6745.
AUD respected its 0.6715-0.6733 Asia range through the European session. Mooted bids at 0.6700-10 and offers near 0.6750 are helping define the range. Minutes from RBA's Feb 4 meeting will be published today (11.30am).
AUD continues to hover near 10-DMA support by 0.6717, a fall below eyes 2020 low 0.6656. Support 0.6703-08, 0.6680 whilst immediate resistance at 0.6745-50.
A bull run case remains weak below 0.6845 (50% Fib of 0.7032-0.6657) & multiple DMA area. Daily RSI’s remain poised higher for eventual gains.