23rd October 2019 - AUD bulls stumble ahead of Brexit indecision



Good morning


OVERNIGHT DATA AND HEADLINES


• China and the U.S. have achieved some progress in their trade talks, Vice Foreign Minister Le Yucheng said on Tuesday, adding that as long as both sides respected each other, any problem could be resolved.

• US Richmond Fed survey rose sharply to +8 (est. -7, prior -9). Gains were broad-based with notable lifts in employment and new orders, and expectations edging higher in addition to stronger current conditions.

• Canada’s Liberal PM Trudeau remains in power for a 2nd term in office, defying potential for a weak outcome, but as a minority (seats cut from 184 at the last election, 177 prior to the vote, to 157 with 170 needed for a majority) and needing the support of other minor parties.

• U.S. existing home sales for September came in below the consensus forecast, falling 2.2% from the previous +1.3%. Details suggested a more stable housing market than headlines indicated.

• U.S. stocks fell as concerns over the fallout from the fragile U.S.-China trade relationship increased. Dow -38 points (0.14%) 26,788, S&P 500 -10 points (0.35%) 2,996.12, Nasdaq -58 points (0.72%) 8,104.30.

• Lawmakers in the U.K. voted 322 to 308 against the so-called Programme Motion which set out a three-day schedule to rush his deal through the House of Commons. Brexit hangs in the balance as the Oct. 31 deadline to leave the EU nears. Earlier, lawmakers voted 329 to 299 in favour of the second reading of his 115-page Withdrawal Agreement Bill, a significant boost for Johnson five days after he struck a deal with the EU.

CURRENCIES


• USD rose against the GBP & EUR as uncertainty spread ahead of the British parliament's vote on the Withdrawal Agreement Bill which will shine light on when and how Britain will exit the EU.

• China's yuan inched lower, as corporate demand for dollars outweighed a stronger-than-expected midpoint fixing and signs of progress in the Sino-U.S. trade negotiations.

• EUR fell from 1.1155 to 1.1118.

• GBP was volatile, making an intraday high of 1.3000 prior to the two Brexit votes an hour ago, and then falling to 1.2862 following the failed second vote.

• USD/JPY grinding slightly lower from 108.60 to 108.47.

• AUD extended a weeklong rally overnight, reaching a 5 week top at 0.6883 before falling back towards 0.6847 lows.

• NZD fell from 0.6435 highs back down to 0.6400.

• AUDNZD preserved the recent decline, ranging between 1.0680 and 1.0715.

• AUDEUR remained firm and supported above 0.6150, reaching 0.6170 highs overnight.


INTEREST RATES


• U.S. long-dated Treasury yields dropped from five-week highs as investors turned cautious and awaited further news on Britain's eventual exit from the EU and more details about the U.S.-China trade deal.

• U.S. two-year yields were slightly lower at 1.61% from Monday's 1.62%.

• U.S. 10-year note yields fell to 1.77% from 1.79% late on Monday (earlier in the session reaching five-week highs of 1.81%).

• Yields on 30-year bonds were down at 2.26% from 2.28% on Monday, touching a five-week peak earlier of 2.30%.

• German Bund & UK 10-year Gilt yields fell on the day, their weakness spilling over to the U.S. Treasury market.


COMMODITIES


• Gold steadied in a tight range as investors adopted a cautious approach ahead of a Brexit vote, while focus shifted to the U.S. Fed’s stance on interest rate cuts. Spot gold was steady at $1,484.60 per ounce.

• China's iron ore futures extended gains for a third session, buoyed by continued supply worries, after one of the top global miners, Vale SA halted a tailing dam earlier this month, and lowered full year iron ore and pellet sales guidance. Benchmark spot 62% iron ore for delivery to China remained unchanged at $86.5 a tonne from previous two sessions.

• Copper prices edged lower as traders gauged the impact of intensifying protests in Chile on supplies. Benchmark LME copper ended down 0.2% at $5,818 a tonne after touching $5,868.50 on Monday.

• Oil prices rose after China signalled progress in trade talks with the United States, but gains were capped by bearish forecasts of a build-up in U.S. crude stockpiles. Brent crude oil was up 66 cents at $59.62 a barrel, while U.S. West Texas Intermediate crude <CLc1> was 77 cents higher at $54.08 per barrel.


ECONOMIC CALENDAR


• Australian Economic data today – RBA Assistant Gov FM Chris Kent, panel at Swaps & Derivatives.

• NZ – September trade balance (seasonal low, but meat exports unusually strong).

• Europe – October consumer confidence (still relatively upbeat due to lower unemployment).

• U.S. – August FHFA house prices.


AUD THOUGHTS


In the absence of any major overnight data and political setbacks, AUD under performed – failing to make any further gains past the 0.6875 resistance levels and falling back towards 0.6847 lows.


The Brexit circus rolls on with the market now awaiting the proposed plan forward after UK Prime Minister Boris Johnson’s fast-tracked plans were scuttled overnight. Despite the setback there still seems some optimism about with an imminent solution at hand. No major Australian Economic data today. Expect another quieter day ahead locally with the RBA’s Christopher Kent unlikely to make any market moving commentary as he takes part in a panel at the International Swaps and Derivatives Association meeting in Sydney.


TECHNICAL OUTLOOK


AUD Indecision by the cloud top. Daily cloud top caps the rally, pull back ensues.

AUD slide extends near 0.6850 before USD sold & buyers emerge. Daily doji forms near cloud top, could be a warning to AUD longs.

AU yields & AUD could rally big on possible double bottoms. Good support in 0.6800/20 zone where the build-up of 10,21 & 55 day moving averages loom. If tested & holds 0.6895/0.6920 then eyed.

RSI’s seem to have turned – awaiting 24 hour further confirmation on a clear turn in direction.




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