OVERNIGHT DATA AND HEADLINES
• A rise in U.S. technology stocks and better-than-expected economic data in China pushed global equity markets higher Monday, despite reports that Washington was considering escalating its trade war with China by delisting Chinese companies from U.S. exchanges.
• U.S. stocks climbed, helped by gains in Apple, Microsoft and Merck & Co. Dow Jones +0.36% at 26,916.83 points, S&P 500 +0.50% to 2,976.73, Nasdaq +0.1% to 7,999.34
• UK PM Johnson to reveal final Brexit Plan to EU leaders within 24 hours. A proposal to align regulations on industrial goods is expected. The Telegraph has reported that Boris Johnson will finally unveil his detailed plan for Brexit to EU leaders within the next 24 hours. It is expected to be based on the creation of an all-Ireland “economic zone” which would allow agricultural and food products to move between Ulster and the republic without checks at the border. A proposal to align regulations on industrial goods is expected.
• U.S. DXY continued the bull run higher, jumping up from 99.05 towards 99.45 highs.
• EUR fell to 1.0884, its lowest level in two-and-a-half years, as concerns about euro zone growth weighed continued.
• GBP also fell down towards 1.2273 lows, as Brexit uncertainty persisted.
• AUD was also weak ahead of an interest rate decision by the RBA – AUD was down at 0.6738 lows (-0.16%).
• NZD skidded to near four-year lows after a dismal survey of business confidence (plummeting to an 11-1/2-year trough). NZD down 0.48% towards 0.6250 lows.
• AUDNZD whipsawed overnight - made it as high as 1.0798, back towards 1.0750 and back up towards 1.0780 into the NY close.
• AUDEUR capitalised on the weaker EUR jumping up (briefly) towards 0.6202 but ended back lower at 0.6190.
• U.S. treasury yields ended roughly unchanged as month- and quarter-end flows helped erase the yield curve steepening that happened earlier in the session.
• The two-year note yield was up less than half a basis point to 1.628%, with the benchmark 10-year note yield also up 0.4 basis point at 1.677%.
• The spread between the two- and 10-year note yields fell to 4.7 basis points after rising as high as 6.2 basis points earlier in the day.
• Euro zone bond yields edged up after ECB President Mario Draghi again emphasised the need for fiscal policy to support the bloc's long-term growth prospects. Long-dated bond yields in Germany and France have risen about 15 bps this month, set for their biggest monthly rise since early 2018. Germany's 10-year benchmark was flat on the day at -0.57%.
• Gold shed 1.8% to $1,469.61 after the USD DXY hit multi-year highs. Earlier, prices fell about 2% to their lowest since Aug. 6 at $1,465.90, marking its first monthly decline in five months.
• China's steel and iron ore futures perked up after China’s central bank vowed to step up efforts to lift a slowing economy, though gains were pared ahead of a long holiday. Iron ore on the Singapore Exchange was up 3% at $88.55 a tonne.
• Copper slipped as worries about weak demand due to the prolonged U.S.-China trade war weighed on sentiment, but above-consensus industrial activity data from China provided price support. Benchmark LME copper ended down 0.7% at $5,725 a tonne. Prices are down more than 4% this quarter and on course for their second quarterly loss.
• Oil prices fell on fading concerns of supply shortfalls and conflicts in the Middle East after the Sept. 14 attack on Saudi Arabia, but Brent posted its biggest quarterly loss this year on demand fears due to the escalating U.S.-China trade war. Brent crude futures settled at $60.78 (-$1.13) or 1.8%. U.S. WTI crude futures fell $1.84 (3.3%) to $54.07.
EVENT RISK TODAY
• Australian Economic data releases today : August dwelling approvals, September AiG PMI
• Australian RBA policy decision (2.30 p.m.) – rates widely expected to be cut in response to global & domestic challenges.
• RBA Governor Lowe – remarks at RBA Board dinner tonight (Melbourne 7.20p.m.)
• New Zealand : Q3 survey of business opinion
• Japan, China, Europe, U.K. & U.S. – a raft of September Markit manufacturing releases today and overnight
AUD thoughts :
Falls across the board continued overnight with USD fixing demand driving the AUD towards a quick drop near 0.6740 lows (0.6738).
It managed to recoup a little back still remains sidelined around 0.6750 pivotal point ahead of today’s RBA bank meeting. AUD's consolidation of losses after recently peaking at 0.6895 suggests shorts maintain control ahead of the RBA but those shorts might be let down after the meeting.
Australian short-term rates markets put the probability of a 25bp RBA cut above 75%. While that probability has increased recently the markets have largely expected a cut which has been factored into AUD pricing. The lack of a downside reaction post-RBA might frustrate bears and drive short covering.
Market players remain cautious amid political uncertainty and ahead of first-tier events later this week. Looking ahead for this week, we will have the key Nonfarm Payrolls out on Friday where expectations are an increase by 150k – 160k in September, following the below-consensus 130k August print. Jobs in the goods sector should remain soft, while we look for a modest rebound in services. The household survey should show the unemployment rate remaining steady at 3.7%, while wages are expected to rise 0.2% m/m, leaving the annual rate unchanged at 3.2% y/y.
Technical outlook….AUD Investors indecisive ahead of the RBA today”.
Potential for AUD shorts not to be rewarded after the RBA announcement. Falling daily RSI’s, an inverted monthly hammer and consolidation suggest the downside for AUD is vulnerable.
Overnight vol premiums are at their lowest for 2019, which indicates limited reaction to the RBA is due.
AUD shorts will likely need a very dovish statement from the RBA in order to be rewarded with bearish price action.
For now, AUD remains buoyed above 76.4% Fibonacci @ 0.6729 (0.6678-0.6895). Immediate resistance stands at 0.6780 (10 day moving average).