18th October 2019 - Positive Brexit sees AUD take a breather ahead of key resistance level



Good morning


OVERNIGHT DATA AND HEADLINES


• A deal on Britain's departure agreed with the European Union sent GBP to a five-month high and hoisted European stocks to a year-and-a-half peak before doubts about UK parliamentary support hauled them back. Wall Street rose as upbeat earnings from Netflix and Morgan Stanley affirmed a strong start to the U.S. reporting season while the USD fell across the board.

• Britain clinched an eleventh-hour Brexit deal with the EU, more than three years after Britons voted in a referendum to leave the bloc, but PM Boris Johnson still faces a knife-edge vote in parliament to get it approved. "Where there is a will there is a deal - we have one! It's a fair and balanced agreement for the EU and the UK and it is a testament to our commitment to find solutions," European Commission President Jean-Claude Juncker said in a tweet a few hours before the start of an EU summit in Brussels. Johnson, who was due to meet the 27 at the summit later on Thursday, declared: "we have a great new Brexit deal". He is hoping to get approval for the agreement in a vote at an extraordinary session of the British parliament on Saturday, to pave the way for an orderly departure on Oct. 31. However, the Northern Irish party that Johnson needs to help ratify any agreement has refused to support the deal that was hammered out over weeks of negotiations. The head of the main opposition Labour Party, Jeremy Corbyn, said in Brussels he was "unhappy" with the deal and would vote against it. Lawmakers in his party said they had been told to vote for another referendum on Saturday.

• U.S. homebuilding tumbled from more than a 12-year high in September, but single-family home construction rose for a fourth straight month, suggesting the housing market remains supported by lower mortgage rates even as the economy is slowing. Housing starts declined 9.4% to a seasonally adjusted annual rate of 1.256 million units last month as construction in the volatile multi-family housing segment dropped. Data for August was revised higher to show homebuilding accelerating to a pace of 1.386 million units, which was the highest level since June 2007.

• Manufacturing production fell 0.5% last month as a strike by about 48,000 workers at General Motors hammered motor vehicle output. Production at factories increased 0.6% in August. Excluding motor vehicles, manufacturing output dropped 0.2% after surging 0.7% in August.

• Philadelphia Fed said its business conditions index for the region that covers eastern Pennsylvania, southern New Jersey and Delaware fell to a reading of 5.6 in October from 12.0 in September. Its six-month business conditions index jumped to a reading of 33.8 this month from 20.8 in September.

• Despite the slowing economy, companies are holding on to their workers. In a fourth report, the Labour Department said initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 214,000 for the week ended Oct. 12. Last week's claims data covered the survey period for the nonfarm payrolls component of October's employment report.

• Wall Street gained ground as positive geopolitical developments and a string of corporate earnings beats put investors in a buying mood. Dow Jones rose 21.86 points (0.08%) to 27,023, S&P 500 gained 8.24 points (0.28%) to 2,997 and the Nasdaq added 27.75 points (0.34%) to 8,151.


CURRENCIES


• The USD fell sharply against across the board as EU leaders unanimously backed a long-awaited Brexit deal. DXY fell from 98.40 down towards 97.50.

• News of the agreement was enough to boost the EUR 0.46% against the USD from 1.1050 towards 1.1130.

• GBP surged to a five-month high from 1.2755 to within a whisker of 1.3000 (1.2988 high) before retreating sharply back towards 1.2850.

• AUD held near the day's highs, up 1.02% towards 0.6833 highs after the relatively positive domestic jobs data and Brexit announcement.

• NZD followed the other majors higher, jumping from 0.6290 lows towards 0.6350 highs.

• CNY saw it fall from 7.1000 down to 7.0640 lows.

• AUDNZD fell from 1.0790 highs down towards 1.0740. Currently up in smalls at 1.0750.

• AUDEUR gained early on, jumping up from 0.6090 lows towards 0.6150 however selling interest took it back to 0.6130.

INTEREST RATES

• U.S. Treasuries reversed earlier price weakness as concerns grew that Britain’s parliament may not pass a deal designed to avoid a disorderly exit from the EU. Yields came down from session highs as doubts about the deal's passage grew.

• Benchmark 10-year note yields were little changed on the day at 1.743%, after earlier rising as high as 1.799%, a level last reached on Sept. 19.

• U.S. Two-year yields closed at 1.59% & the 30 year bond was last at 2.23%.

• Australian government bond futures dipped slightly over yesterday’s jobs data, with the three-year bond contract off 2 ticks at 99.290. The 10-year contract also eased 2 ticks to 98.930, implying 1.07% yield.

COMMODITIES


• Gold rose as weak data from the U.S. rekindled fears of an economic slowdown and as concerns surfaced over possible risks to a new Brexit deal, while supply-squeezed palladium continued its record run. Spot gold was up 0.4% at $1,495.31 per ounce.

• Benchmark Dalian iron ore futures extended losses into a fourth consecutive session on Thursday to hit seven-week lows. Two of the world's biggest iron ore miners, Vale SA and Rio Tinto, this week reported higher quarterly output and shipments, sending signals that global production had largely stabilised. On the Singapore Exchange, the front-month November contract slipped as much as 1.9% to its lowest since late August. Prices of spot cargoes of benchmark iron ore with 62% iron content for delivery to China fell to $89.50 a tonne from Tuesday's $91.50.

• Copper inched higher - Three-month LME copper gained 0.2% to $5,739 a tonne. LME aluminium ended 0.1% lower at $1,727 a tonne, zinc added 0.2% to $2,439 and lead rose 1.4% to $2,190.

• Oil prices edged lower after a larger-than-expected rise in U.S. crude stockpiles and a series of weak economic figures, although a drop in fuel inventories helped offset the decline. Global benchmark Brent crude fell 8 cents to $59.34 a barrel. U.S. WTI crude gained 57 cents, or 1.1%, to settle at $53.93 a barrel.

ECONOMIC CALENDAR


• No Australian Economic data today

• Chinese data out today – September retail sales, Q3 GDP

• U.S. – September leading index


AUD THOUGHTS


AUD hopped higher overnight after solid local jobs data led investors to trim the chance of a cut in interest rates next month, though futures still favoured December for a move.

Thursday's data showed employment rose 14,700 in September, much as expected, while full-time jobs increased by a healthy 26,200. That helped nudge the jobless rate down a tick to 5.2%, when

analysts had expected it to hold at a one-year high of 5.3%. AUD initially gained 0.4% to 0.6785, edging away from the week's low of 0.6724.

The positive Brexit announcement really saw AUD higher through key technical resistance towards 0.6833 highs overnight.

No Australian Economic data today however a raft of Chinese data will be released to close out the trading week.

Expectations for investment growth to remain flat, with improving infrastructure FAI offsetting the slowdown elsewhere. Industrial production growth could increase in September, due to a seasonal “pulse”.

However, this will not change the trend of a slowing economy, with real GDP growth likely to decrease to 6.0-6.1% y/y in Q3 from 6.2% in Q2. Growth disappointment should weigh on the yuan.


The Brexit headlines will no doubt continue to dominate market attention as the EU summit continues into the weekend.


TECHNICAL OUTLOOK


AUD longs take a breather ahead of a key Fibonacci level.

Rising RSIs have really come into focus, the break of 0.6810 resistance and 76.4% Fib of 0.6895-0.6670 to be tested. A break of that Fib likely to encourage longs open door to September's high.

Resistance clearly at 0.6830 levels (which reflects overnight high) – move higher sets up a play for 0.6876.

China GDP, retail sales, industrial output are data risks in Asia today.




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