OVERNIGHT DATA AND HEADLINES
- News of spreading and increasing cases of the coronavirus overshadowed markets
- ECB left policy unchanged, as widely expected. However, the duration of their extensive review of policy, tools and strategy into late 2020 was cited as a reason for their policy to remain unchanged despite tentative signs of stability and moderate (rather than mild) underlying inflation.
- Data releases were light and generally second tier. US jobless claims were again benign and the Jan. Kansas Fed survey showed sound new order and employment components as it edged towards zero (-1, est. -6, prior -8)
- The UK Brexit Bill gained royal assent to become law and affirm UK’s exit from EU at the end of January
JPY firmed and USD continued to grind higher (USD/JPY 109.35) throughout European trading. EUR/USD slid -0.5% to 1.1040 after ECB indicated that policy would likely be unchanged in 2020 (EUR/JPY -1.0% at 120.65). GBP/USD (-0.35% to 1.3100) unwound some of yesterday’s gains and AUD/USD (0.6840) also lost its labour report related rebound . USD/CAD (1.3150) and NZD/USD (0.6585) were more stable.
Oil had been depressed by the ongoing coronavirus news before a surprise draw in both US crude and distillate stocks (markets were primed for rises) triggered a sound rebound of around +1%. Brent bounced from a USD61.25/bbl low but still was down -2% on the day at USD61.90/bbl. (WTI rebounding from USD54.75/bbl. to USD55.50, -2.15%). The drop in sentiment caused Gold to stabilise (+0.33%) to USD1564/oz.
Bonds had a constant bid tone which drove US 10yr down -5bps to test 1.72% and the move was reflected in 10yr Gilts (-5bps to 58.5bps) and Bunds (-5bps to -31bps) with European bonds showing more flattening curve (2s/10s -3bps) than in US (2s/10s -1bps).
ECONOMIC DATA TODAY
The Q4 NZ CPI report will be the focus of today’s Australasian session. A 0.4% rise in prices in Q4 is expected to leave the annual rate at 1.8%yr. Tobacco excise, international airfares and construction costs all look set to support inflation in the quarter. Muted growth in the price of many retail goods will act as a partial offset. Note, market’s forecast of 0.4% is above that of the RBNZ, 0.2%.
Japan’s December CPI is also set for release. Inflation pressures remain absent there, with annual headline inflation expected to print at just 0.7%yr in December.
Also out today are January PMIs for Japan, the UK, Euro Area and US.
- The Australian Dollar enjoyed a boost from strong jobs data and receding RBA rate cut odds
- AUD/USD forfeited the entirety of Thursday’s gains as broader risk aversion took hold
- Similarly, AUD/CAD tested the 200-day simple moving average before retracing beneath 0.90
Strong jobs data helped to reduce RBA rate cut odds on Thursday, but broader risk aversion – as evidenced by price action on indices like the Nasdaq 100 – worked to erode the gains initially enjoyed by the Australian Dollar. Last week I noted AUD weakness may persist in the medium term, although Thursday’s jobs report could look to shore up the currency’s standing somewhat. Still, various technical barriers exist overhead that may look to keep the Australian Dollar contained, despite the newfound cause for bullishness.
In the case of AUD/USD, a long upper wick on the Thursday candle highlights the transition from AUD strength to weakness as risk appetite receded. Furthermore, the retracement saw the pair slip beneath the 200-day moving average around 0.6865 which coincides with horizontal resistance from the May 2019 swing low. Together, the two levels will look to rebuke further attempts higher. Should they fail, subsequent resistance likely resides at 0.69.
AUD/USD Price Chart: Daily Time Frame (December 2018 – January 2020)
On the other hand, prolonged risk aversion could pressure AUD/USD lower still. Beyond the 2016 low which will look to offer a modicum of support in the interim, subsequent support resides around the descending channel marked by the various highs from the last two years.