22nd October 2019 - AUD pulls away from monthly highs



Good morning


OVERNIGHT DATA AND HEADLINES


• US President Trump stated that the “trade deal with China is coming along great”. This followed positive comments from other Administration officials with respect to the negotiations and potential for Phase 1 of the negotiations to be signed at the APEC Conference in Chile in November. President Donald Trump said issues in phase two of the deal would be, in many ways, a lot easier to work out than those in phase one.

• White House economic adviser Larry Kudlow fanned hopes, saying in an interview on Fox Business that tariffs scheduled for December could be withdrawn if negotiations continue to go well.

• Just when it looked like a Brexit deal is on its way with a vote on Monday, House of Commons speaker John Bercow refused to allow that vote as the same issue had been discussed on Saturday.

• Brexit: UK Speaker of the House, John Bercow, declared that the Johnson Government could not table a motion to debate another “Meaningful Vote” on the revised Withdrawal Agreement negotiated with EU. This is a strict interpretation of Parliamentary (that a motion cannot be tabled more than once in the same Parliamentary session without material change). As such, it delays the process of Brexit once again and will mean that a more cumbersome process of submitting the Withdrawal Agreement Bill will be initiated tomorrow. This frustrates the Government’s plans to obtain a fast track even though they still hope to complete the Commons stage by end of Oct 24th, and the WAB will be prone to a rash of amendments that may further delay or even distort the bill.

• Shares on world stock indexes mostly rose, as hopes for resolving the U.S.-China trade war pushed investors toward riskier assets, while the GBP was near a 5-1/2-month high.

• The S&P 500 and Nasdaq indexes rose as technology stocks were bolstered by signs of progress in resolving the prolonged U.S.-China trade dispute, while losses in Boeing capped gains in Dow Jones Industrials. Dow Jones rose 55.68 points (0.21%) to 26,825, S&P 500 gained 20.51 points (0.69%) to 3,006.71 and the Nasdaq added 73.44 points (0.91%) to 8,162.


CURRENCIES


• The USD crawled toward its worst month since January 2018, up from 97.14 lows to 97.32.

• GBP was last up 0.1% at 1.3012 (fresh 5-1/2 month highs) before retracing to 1.2950.

• EUR initially rose to 1.1179 (2 month high) before falling back to 1.1145.

• CNY opened at 7.0680 and was slightly weaker overnight, trading up towards 7.0750.

• USD/JPY ranged between 108.45 and 108.65.

• AUD made a 0.6880 high before retracing back towards 1.6860.

• NZD rose to 0.6416 (one-month high) before retracing to 0.6385.

• AUDNZD ranged between 1.0715 and 1.0750.

• AUDEUR made gains from 0.6130 up to 0.6165.


INTEREST RATES


• U.S. Treasury yields rose, lifted by optimism about a potential trade deal between the U.S. and China..

• On the short-end of the curve, U.S. two-year yields climbed to 1.616% from Friday's 1.576%.

• U.S. 10-year and two-year yields, on the other hand, advanced in six of the last eight days. U.S. 10-year note yields rose to 1.794% from 1.75% late on Friday.

• U.S. 30-year yields rose to five-week highs, climbing for eight straight sessions. Yields on 30-year bonds were up at 2.286%, from 2.248%.

• Markets are pricing 23bp of easing at the Fed’s 30th October meeting and a terminal rate of 1.23% (vs 1.88% currently).

• Australian 3yr government bond yields rose from 0.77% to 0.80%, the 10yr yield from 1.16% to 1.19%. Markets are pricing just 4bp of easing at the 5 Nov RBA meeting, and a terminal rate of 0.50%.


COMMODITIES


• Gold eased on improved appetite for riskier assets - Spot gold was down 0.3% at $1,485.03 per ounce.

• Chinese steel futures declined for a second session, pressured by expectations for slowing consumption and as robust output from mills added to supply. Benchmark 62% iron ore for delivery to China was at $86.50 a tonne, flat from the day earlier.

• Copper prices rose to one-month highs as protests in major producer Chile fuelled concern about supplies and the prospect of easing trade tensions between China and the U.S. boosted sentiment. LME 3 month copper ended 0.4% up at $5,828 a tonne (prices earlier touched a session high of $5,868.50).

• Oil prices fell nearly 1% after comments from a U.S. official stymied hopes that a U.S.-China trade deal would be reached soon. Brent crude futures fell 50 cents (0.8%) to $58.92 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell 47 cents (0.9%) to settle at $53.31 a barrel.


ECONOMIC CALENDAR


• No Australian Economic data today.

• U.S : Sep existing home sales are expected to decline 0.7% (supply and economic uncertainty creating headwinds).

• U.S : October Richmond Fed index (regional surveys very volatile).


AUD THOUGHTS


AUD pulled away from monthly highs overnight, trading up towards 0.6880 on broad based USD selling and steadying down around 0.6865.

Eyes on US-China trade headlines dominated with heightened hopes of the U.S. and China reaching a trade deal and avoiding a further escalation of the conflict.

Earlier in the day, White House economic adviser Kudlow said that they would call off December tariff hike if the phase-one trade talks were to continue to go well.

Additionally, "trade deal with China is coming along great," US President Donald Trump noted.

Reflecting the positive reaction to these comments, the 10-year US Treasury bond yield added more than 2% and Wall Street's main indexes closed the day in the positive territory.


This week's macroeconomic calendar won't be featuring any significant macroeconomic data releases from the US or Australia. AUD is likely to continue to react to US-China trade developments.

Mid-tier data releases from the US will include the IHS Markit's preliminary Manufacturing and Services PMI on Tuesday and durable goods orders on Thursday.


Market focus is likely to remain on trade headlines amid empty economic calendar. After reaching its highest level since August 18th at 0.6881, AUD consolidates its daily gains and opens this morning at 0.6866.


TECHNICAL OUTLOOK

AUD longs' confidence remains as key hurdles approach - Brexit & US-Sino trade optimism leads to a daily cloud top test.

USD selling interest stops, AUD slides, pull back is minimal towards 0.6855/60 supports.

RSIs continue to rise, monthly bull hammer forms, technical picture suggests potential further gains are due.

Resistance now reached at 0.6875 technical level (brief break). Next level higher 0.6900 and then 0.6925.




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