21st May 2019 - The Aussie holds election result driven gains ahead of RBA minutes and Governor Lowe

Good Morning,


Market Headlines

- US equities fell overnight as US-China trade tensions continued to dampen sentiment. US technology stocks were hurt as firms reportedly started cutting supplies to Chinese firm Huawei in compliance with Pres. Trump’s order. Currency and interest rate markets were contained.


- The US 10yr treasury yield rose slightly from 2.39% to 2.42%, the 2yr yield from 2.20% to 2.23%.


- The chance of a Fed rate cut by December, implied by Fed fund futures, slipped from 120% to 110%.


- U.S. stocks slid as the White House's restrictions on Chinese Huawei Technologies Co Ltd weighed on the technology sector and raised concerns the move would further inflame trade tensions between the U.S. and China. Since the White House added Huawei to a trade blacklist last week, several companies have suspended business. Dow Jones fell 84 points (0.33%) to 25,679.9, the S&P 500 lost 19 points (0.67%) to 2,840.23, and the Nasdaq dropped 114 points (1.46%) to 7,702.38.


- Gold steadied after recovering slightly from a more than 2 week low hit earlier in the session. Spot gold was unchanged at $1,276.94 per ounce.


- China's iron ore futures continued to rise after recording their best weekly performance in six weeks, buoyed by expectations of a robust near-term demand at steel mills amid strong profitability.


- Oil prices rose to multi-week highs before easing later in the session as OPEC indicated it was likely to maintain production cuts that have helped boost prices this year, while escalating Middle East tensions provided further support. U.S. WTI crude futures rose 34 cents to settle at $63.10 a barrel, after hitting $63.81, the highest price since May 1. Brent crude futures fell 24 cents to settle at $71.97 a barrel, having earlier touched $73.40, their highest since April 26.


Currencies

- The USD index is down 0.1% on the day, falling back towards 97.93 from 98.03.

- EUR rose from 1.1150 to 1.1175.

- USD/JPY fell from 110.20 to 109.80.

- AUD slipped from 0.6934 to 0.6906, still preserving most of its election-led gains.

- NZD slipped from 0.6545 to 0.6529.

- AUD/NZD ranged sideways between 1.0570 and 1.0595 (vs 1.0537 at Friday’s close).

- AUD/EUR maintained most of its gains trading in and around 0.6180 / 0.6190.


AUD Thoughts

- The Aussie holds election result driven gains ahead of RBA minutes and Governor Lowe’s speech.

- The US-China spat can keep entertaining traders amid lack of major data/events.


Having recovered on the election results during Monday, the AUD/USD pair holds the strength to trade near 0.6910 at the initial Asian session on Tuesday. The minute's statement of the latest Reserve Bank of Australia (RBA) meeting is in the spotlight for now.


Not only surprise victory of the present PM Scott Morrison but tax cut announcement just after few hours of his selection also pleased the Aussie buyers recently.


On a trade front, the US and China continue to jostle for better terms by turning down each other. The US earlier banned China’s Huawei from doing business with their firms but the US


Commerce Department recently came out with the temporary 90-day license to offer a bit of relief.


Risk tone was a bit light off-late as the US 10-year treasury yields grew more than 2 basis points to 2.42% by the press time.


While the quarterly rate statement has already dimmed importance of today’s minute statement from the RBA, investors might seek further details on why the Australian central bank refrain from rate cuts and hiked economic forecasts instead.


Additionally, the RBA Governor Stephen Lowe is also up for speaking at the Economic Society of Australia Business Lunch, in Brisbane. His comments will also be observed to validate a minute statement.


Given the absence of major catalysts after RBA, markets are likely to emphasize more on the news reports concerning the US-China story in order to determine near-term trade sentiment.


Technical Outlook

A downward sloping trend-line since April 18 can limit the quote’s immediate upside at 0.6940 whereas 0.7000, 0.7030 and 0.7055 may entertain buyers afterward.


Alternatively, 0.6880 and 0.6860 seem nearby supports to follow during the pair’s pullback a break of which can recall January 2016 low surrounding 0.6830 on the chart


Event Risk Data Today

- No Australian Economic data - the May RBA minutes will provide further detail on the shift to an easing bias from the Statement on Monetary Policy. RBA Governor Lowe speaks on “The Economic Outlook and Monetary Policy”, 12:15 pm.


- Euro Area: May consumer confidence is expected to be fairly stable at -7.6 from -7.9.


- US: Fed Chair Powell speaks on “Assessing Risks to our Financial System” at the Atlanta Fed Financial Markets Conference (9 am Sydney time).

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