18th July 2019 - Australian economy and jobs data back in focus

Good Morning,

Market Headlines

- US housing starts fell 0.9% in June, the volatile multi-family segment accounting for all the weakness. More encouragingly single family starts rose 3.5%, though that follows a 5.1% fall in the previous month.

- UK June inflation was very much in line with expectations. Headline and core CPI at 2.0%y/y (prior 2.0%y/y) and 1.8%y/y (prior 1.7%) were in line with estimates and the headline remains at the BoE’s target.

- Eurozone final headline CPI lifted marginally to +0.2%m/m and 1.3%y/y (initial releases of +0.2%m/m and 1.2%y/y) but the more important core CPI was unchanged at 1.1%y/y.

- Oil fell 1.6% to $63.20 after US fuel inventories reportedly grew. Gold rose 1.3% to $1425, helped by the risk averse mood.


- The US dollar index is down 0.2% on the day.

- EUR rose from 1.1200 to 1.1233. USD/JPY fell from 108.20 to 108.00.

- AUD bounced off 0.6996 to 0.7025.

- Outperformer NZD rose from 0.6700 to 0.6747 – a three-month high.

- AUD/NZD extended its multi-month grind lower, from 1.0440 to 1.0408 – a four-month low.

AUD Thoughts

AUD/USD is held up in its advance as markets dial down the prospects of deeper Federal Reserve cuts. The Fed seems most likely to cut rates once by 25bp in 2019 and then leave rates on hold through 2020 rather than embarking on a series of rate cuts.

There have been three rate cuts priced into futures markets by end-2019 which would entail the Fed undoing nearly all of the tightening enacted in 2018, which now seems quite unlikely unless the US economy slows down much more sharply than we (and the Fed) currently anticipate. Data of late has supported a less dovish bias.

Focus now turns back to the Australian economy and jobs data. We anticipate some give back in June from May's election driven boost to employment. We forecast +5k for headline Jun employment, the participation rate to remain at 66% and the unemployment rate to remain at 5.2%. The risk is for the unemployment rate to edge higher should more people be looking for work.

Technical Outlook

On a technical basis, AUD/USD is approaching a very tough band of resistance, namely 0.7048/91. This is the May high and the July high so far, the 200-day ma and the downtrend. It is likely to hold the initial test and we note the 13 counts on the intraday charts, we would allow for failure here and a near term slide lower. Further up resistance can be spotted at the 0.7207 February high.

The 0.6911 10th July low guards underlying support at 0.6865 the 17th May low and the mid-June low at 0.6832.

Event Risk Data Today

- Australia: Jun employment is expected to rise 9k and see the unemployment rate hold at 5.2%. Markets forecasting a 10k increase in employment but expects the unemployment rate to decline to 5.1% due to a pull-back in the participation rate. Q2 NAB business survey will provide further detail on the monthly read – conditions (+2) and confidence (+3) both below average in Jun.

- UK: Jun retail sales are anticipated to decrease 0.3% following a 0.5% decline in May.

- US: Fedspeak involves Bostic in an armchair chart and Williams on monetary policy.

- The two day G7 Finance Ministers and Central Bank Governors meeting reaches a conclusion. It is the last meeting to be held before the G7 Summit of heads of state on August 24-26.

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