25th June 2019 - AUD heading towards resistance


Good Morning,


Market Headlines

- US 10yr treasury yields fell from 2.05% to 2.01%, while 2yr yields fell from 1.78% to 1.72%. Markets are pricing 36bp of easing at the July meeting, with a total of four cuts priced by mid-2020.


- The Dallas Fed regional factory survey fell to a three year low in June of 12.1 from -5.3, below expectations and yet another sign that the global manufacturing slump is spreading to the US. New orders and production firmed slightly but outlook indicators and CAPEX plans tumbled.


- Germany’s IFO survey for June slipped to 97.4, as expected, from 97.9 in May. Current conditions actually lifted to 100.8 (prior 100.7. est. 100.3) but the slip in the more market sensitive expectations to 94.2 (prior 95.2, est. 94.6) weighed on sentiment, even if the IFO survey avoided the slump in expectations seen in the ZEW surveys


- Gold rose 1.3% to $1419 – a six-year high, supported by an assortment of global risks as well as easier central banks.


Currencies

- The US dollar index is down 0.2% on the day.

- EUR rose from 1.1373 to 1.1404.

- USD/JPY ranged between 107.25 and 107.55.

- AUD rose from 0.6945 to 0.6970.

- NZD rose from 0.6600 to 0.6626.

- AUD/NZD ranged between 1.0510 and 1.0550


AUD Thoughts/Technical Outlook

- The AUD/USD pair built on last week's goodish bounce from multi-month lows and continued gaining positive traction for the fifth consecutive session on Monday.

- The pair now seems to have entered a bullish consolidation phase and was seen oscillating in a narrow band around the 61.8% Fibonacci level of the 0.7022-0.6831 recent slide.


Having tumbled from 0.7200 mid-April to the high 0.68s mid-May as soft Australian data and RBA rhetoric pointed to a minimum of 2 cash rate cuts, AUD/USD price action has been a lot more mixed in recent weeks. Five-year highs on iron ore prices have provided some light amid gloom for other key commodities and record short A$ positions by real money accounts in futures markets suggest plenty of bad news priced in. Increased pricing for Fed easing in response to US trade battles with China, Mexico et al also limits AUD/USD downside. I expect rallies to remain modest and some trade with a 0.67 handle would not surprise, but we retain our 0.68 end-Sep forecast. (17 June)


Any subsequent up-move is likely to confront immediate resistance near 50-day Simple Moving Average (SMA), around the 0.6975, above which if cleared would support prospects for an extension of the near-term appreciating move. Meanwhile, technical indicators on hourly/daily charts maintained their bullish bias and further reinforce the constructive set-up, though bulls are likely to wait for a sustained move beyond the mentioned barrier.


Event Risk Data Today

- NZ: The trade balance for May is expected to be a surplus of $250m.


- Australia: RBA Assistant Governor Bullock speaks on the Australian payments system in Berlin (5:00 pm AEST).


- US: Apr FHFA house prices and Apr S&P/CS home price index are expected to show a continued gradual slowing in dwelling price growth while May new home sales are seen to bounce 1.8% following a 6.9% decline in Apr. Jun Conference Board consumer confidence is anticipated to remain upbeat at 131.0. Fed Chair Powell speaks on the “Economic Outlook and Monetary Policy Review”. Other Fedspeak includes Williams at the OPEN Finance Forum, Bostic on housing, and Barkin in Ottawa.

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