23rd March 2020 - Tentative start for AUD after a volatile week



Good morning


OVERNIGHT HEADLINES AND DATA


• Wall Street retreated on Friday after New York ordered residents to stay home, rattling investors who had welcomed this week's fiscal and monetary measures to counter the coronavirus shock and help revive the safe-haven appeal of bonds and gold.

• Wall Street wrapped up its worst week since October 2008 - Dow Jones fell 4.55% to 19,173, S&P 500 lost 4.34% to 2,304 and the Nasdaq dropped 3.79% to 6,879.

• The U.S. Federal Reserve continued to roll out emergency support on Friday as it enhanced efforts with other major central banks to ease a global dollar-funding crunch, backstopped a market essential for U.S. state and local government finances and ramped up its purchases of mortgage-backed securities. In a coordinated move, the Fed said it would enhance the permanent U.S. dollar liquidity swap line arrangements it has with the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank to further ease dollar funding stress abroad. The Fed said that it would increase the frequency of 7-day maturity operations from weekly to daily, starting on March 23, and continuing at least through the end of April. The central banks will also continue to hold weekly 84-day maturity operations.

CURRENCIES

• The USD eased as six major central banks announced a coordinated action to enhance liquidity in the currency, but bounced off its lows in afternoon trading as stocks weakened. DXY index fell to 101, bounced to 102.95 and then back down to 102.23.

• China’s CNY bounced from five-month lows (0.5%) in the onshore market from 7.0485 up towards 7.0980.

• EUR fell from 1.0830 highs down to 1.0650. Opens this morning at 1.0710.

• GBP gained up towards 1.1930 but fell back down to 1.1552. Opens this morning 1.1730.

• AUD had another positive session, rising up towards 0.5986 but fell late into NY close towards 0.5745. Opens this morning at 0.5800.

• NZD followed AUD pattern, falling from a 0.5880 high down towards 0.5650.

• AUDEUR staged a fairly good recovery, climbing up towards 0.5550 at one stage (from 0.5050 lows) but headed lower to 0.5410 into the close.

• AUDNZD remained firm, posting gains over 1.0200 (1.0220 high).

TREASURIES


• U.S. Treasury yields fell as an order for NY state residents to stay at home reinforced concerns about the economic impact of the coronavirus pandemic, and the Federal Reserve stepped in with measures aimed at boosting liquidity.

• The 10 year yield was down 24.4 basis points at 0.8853%, with a 43-basis-point swing in the yield during the session continuing the volatility that marked trading last week.

• The movement left a closely watched part of the U.S. yield curve, the gap between the 2-year and 10-year notes, at 55 basis points, 8 basis points lower than its close on Thursday but still at a level not seen until recently since 2018.

• The U.S. two-year note was down from 11 basis points from 0.44% to 0.33%.

• Euro zone bond yields fell as risk sentiment picked up to support Southern European bonds, and German bonds retraced some of their losses from the previous session. German bonds - a safe haven that would sell off when risk sentiment picked up in normal times - also rallied.

• The 10-year Bund yield slid 17 bps to -0.33%, after touching over 10-month highs on Thursday at -0.14%.


COMMODITIES


• Gold rebounded, rising as much as 3.1%, as a wave of fiscal and monetary stimulus by global central banks to counter the economic impact from coronavirus spread halted investors lure for cash. Spot gold was up 0.7% at $1,497 per ounce.

• China's iron ore futures edged higher on optimism that Beijing would ramp up spending on infrastructure projects to prop up the world's second-largest economy that has been battered by the coronavirus epidemic.

• Copper suffered its biggest weekly loss since September 2011 as concerns mounted about the impact of the coronavirus on the global economy and dampened the outlook for metals demand. Benchmark LME copper ended 0.5% lower at $4,810 a tonne.

• U.S. crude tumbled 10.7% on Friday and posted its biggest weekly decline since the 1991 Gulf War as the coronavirus epidemic dried up global demand and as officials in Washington said an envoy would head to Saudi Arabia to deal with fallout of a Saudi-Russia oil price war. Brent crude futures fell $1.49, or 5.2%, to settle at $26.98 a barrel. U.S. crude futures for April fell $2.69, or 10.7%, to settle at $22.53 a barrel.


AUD THOUGHTS


AUD staged a great recovery over the Friday night session, rising up towards 0.5986 highs from 0.5662 lows but fell back into late NY session to just under 0.5800.


The USD staged a ferocious rally last week as investors scrambled to obtain the currency, gaining 4.32% in its biggest weekly rise since the 2008 financial crisis.

On Friday six major central banks announced coordinated action to enhance liquidity in the USD by increasing the frequency of their currency swap operations to occur daily. The USD rose to 1.03, the highest since January 2017.


In the week ahead, European PMIs and US Initial Jobless Claims will finally quantify the economic cost of coronavirus. Weak readings threaten to unnerve financial markets further and the Eurozone PMI data could finally cause the EUR to catch up to the FX depreciations vs the USD seen in other G10 currencies. Expect a lot of the leverage money has already exited positions in the past fortnight although volatility is expected to continue this week as the virus crisis continues to deepen and liquidity worsens.


For the AUD, demand likely rests ahead of last week’s low nearer 0.5510 and could provide some underpinning if we see a modicum of stability this week. Offering interest represents will likely remain plentiful on any meaningful bounce toward .60c.

Opens slightly lower as Australia orders closures - opens -0.3% at 0.5810. Australia orders many venues to close to combat virus. Government pledges extra A$66.4 bln aid, takes stimulus to 10% of GDP.


TECHNICAL OUTLOOK


AUD has a tentative start after a volatile week - eased to 0.5776 in early trading - in sympathy with NZD.

Has recovered to 0.5800, but market is thin and spreads are wide - focus split between spread of coronavirus & action by authorities to offset.

Resistance and sellers ahead at Friday's 0.5987 high - hourly support formed around 0.5665/70

Support 0.5745-50,0.5670-90, resistance 0.5830-40, 0.5890-0.5900, 0.5980-0.6000.



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