1st September 2020 - AUD Retraces from two-year high to sub 0.7400 area with eyes on China data, RBA



Good Morning,

Market Headlines

The S&P500 nudged 0.1% to a fresh record high, the slower rise partly attributed to news that China may try to block the sale of TikTok in the US. The US dollar and bond yields fell slightly, Brent crude futures fell 0.4% to $45.60, copper rose 1.3% to a two-year high, iron ore rose 1.1% to $124.45, and gold rose 0.2%.

Currencies

AUD/USD: 0.7344 – 0.7403

EUR/USD: 1.1885 – 1.1966

GBP/USD: 1.3302 – 1.3396

USD/JPY: 105.67 – 106.09

USD/CAD: 1.3020– 1.3089

NZD/USD: 0.6723 – 0.6764

AUD/JPY: 77.56 – 78.45

AUD/NZD: 1.0923 – 1.0953

AUD Thoughts

- AUD/USD consolidates from 0.7402 after rising the highest since August 2018.

- Sino-American tension weighs on market sentiment after the initial show of optimism on vaccine hopes.

- US dollar weakness keeps the buyers hopeful ahead of a busy day on the economic calendar.

- Second-tier Aussie data will travel through China Caixin PMI to reach RBA.

While scheduled PMIs are likely to remain around the previous levels, the RBA statement will be the key considering the latest recovery in virus numbers. It should be noted that the Aussie central bank isn’t expected to alter the current monetary policy and the benchmark interest rate of 0.25%.

Other than the scheduled data/events, markets will have to keep eyes on the key risk catalysts like virus headlines, trade news and stimulus updates for fresh impetus during the busy day. Given the likeliness of upbeat outcomes from the slated factors, the AUD/USD may regain its power past-0.7400 should RBA refrains from any surprises.

Failures to stay strong beyond 0.7400 indicate brighter chances of the pair’s pullback to January 2019 top surrounding 0.7300 amid overbought RSI conditions. Alternatively, the August 2018 high near 0.7455 will question the immediate upside ahead of July 2018 peak close to 0.7485.

Event Risk Data Today

AU – RBA meeting expected to remain on hold and highlight uncertainties over the outlook.

AU – August CoreLogic home value index expected to fall 0.6% after a 0.8% decline in July

CH – August Caixin manufacturing PMI will contribute to the run of positive manufacturing data (prior: 52.8. market f/c: 52.5)

EU – August manufacturing PMI confirm production is improving (final estimate: 51.7). Job loss concerns are however mounting as government support begins to drop off; the unemployment rate is expected to lift from 7.8% to 8.0% in July. Inflation is expected to rise slightly from -0.4% to 0.0% in August.

NZ - July building permits are expected to see a pullback in multi-unit consents after June’s large increase (prior: 0.5%, Mkt f/c: -10.0%).

US – August ISM manufacturing (final estimate: 53.6). ISM manufacturing should lift slightly from 54.2 to 54.5 in August. Construction spending is set to jump in July as the sector begins to recover (prior: -0.7%, market f/c: 1.1%). FOMC’s Brainard will speak on the New Monetary Policy Framework (03:00AEST).

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