25th September 2019 - AUD further upside vulnerable as U.S. rates dive



Good morning


OVERNIGHT DATA AND HEADLINES


• The USD suffered from renewed fears surrounding the US trade relationship with China and headlines indicating that Nancy Pelosi, the US House Speaker, plans a formal impeachment inquiry of President Trump. News that "House Speaker Nancy Pelosi told House Democrats in a closed-door meeting she will support a formal impeachment inquiry of President Donald Trump, according to two lawmakers, kicking off a dramatic escalation of their months-long confrontation with the president." Waiting to hear an official announcement from Pelosi who is set to make one at 5 p.m.

• U.S. consumer confidence ebbed in September as an escalation in trade tensions fanned concerns about business and labour market conditions. The Conference Board said its consumer confidence index dropped to a reading of 125.1 this month from a downwardly revised 134.2 in August. The index was previously reported at 135.1 in August.

• Mixed readings on U.S. house price inflation in July. The Federal Housing Finance Agency (FHFA) said house prices accelerated in July amid gains across the key regions, a trend that could offset some of the boost to the housing market from declining mortgage rates. FHFA house price index increased a seasonally adjusted 5.0% in July from a year ago. That followed a 4.8% rise in June.

• S&P CoreLogic Case-Shiller house price index for 20 metro areas increased 2.0% from a year ago in July, the smallest gain since August 2012, after rising 2.2% in June.

• The UK Supreme Court has ruled that Boris Johnson's suspension of Parliament was unlawful, further diluting chances of a hard-handing. Now, is up to John Bercow, the Speaker of the House to decide whether to end the parliament's suspension or not. House Leader Mogg will address Parliament on Wednesday.

• Wall Street collapsed on Trump’s impeachment news, oil also went sharply lower. Safe-haven’s gold and yen benefited the most.

• Cryptocurrencies collapsed in the US afternoon, with Bitcoin down over $1,500.00 (15%) in the day hitting a 3-1/2 month low.

• S&P 500 and Nasdaq were set for their worst drops in one month as calls for impeachment of U.S. President Donald Trump gained momentum, while weak consumer confidence data added to worries over the U.S. trade war. Dow Jones fell 142 points (0.53%) to 26,807, S&P 500 lost 25 points (0.84%) to 2,966.6 and Nasdaq fell 118 points (1.46%) to 7,993.63.


INTEREST RATES

• U.S. Treasury yields fell to two-week lows, as risk appetite continued to fade after weak consumer confidence data and President Donald Trump's sharp comments on China amid the two countries' trade negotiations. The U.S. 10-year note and 30-year bond yields slid for a seventh straight session, while those on two-year notes have dropped for four consecutive days.

• U.S. 2 year yields were down at 1.63% from 1.67%, U.S. 10-year note yields fell to 1.66% from 1.70%, 30-year bond yields were also lower at 2.11% from 2.15%.

COMMODITIES

• Gold steadied, holding near a two-week high hit in the previous session on lingering global growth worries. Spot gold was mostly unchanged at $1,521.60 an ounce.

• China's coking coal futures prices fell for a sixth session to their lowest in more than five months due to tepid demand, amid production curbs on steel and coke ahead of China's National Day celebrations. The front-month iron ore contract on the Singapore Exchange was down 3.3% at $87.40 a tonne in late trade.

• Copper prices steadied as plans for a meeting between high-ranking U.S. and Chinese officials in two-weeks encouraged hopes for an end to the trade dispute. LME copper ended little changed at $5,780 a tonne.

• Oil prices fell more than 2% as President Trump fanned market fears that Sino-American trade tensions are far from settled amid ongoing negotiations. Trump sharply criticized what he called China's unfair trade practices in a speech at the United Nations General Assembly, saying he would not accept a "bad deal" between the United States and China. Brent crude settled $1.67 (2.6%) lower at $63.10 a barrel, while WTI futures ended at $57.29 a barrel, down $1.35 (2.3%).

CURRENCIES


• The U.S. DXY index fell 0.28% (from 98.70 towards 98.30) from after dismal U.S. economic data & impeachment concerns..

• CNY largely moved within a tight range (7.1040 – 7.1140) ahead of the week-long National Day holiday.

• EUR recovered back towards the 1.1000 level, hitting 1.1024 highs, however upside remained limited.

• GBP flirted with 1.2500 but was unable to surpass the level as the probability increased of Britain leaving the EU or possibly delaying Brexit.

• AUD leveraged itself against a weaker USD by lifting back up towards 0.6800 from 0.6770.

• NZD followed the AUD lift higher, bouncing from 0.6290 up towards 0.6330.

• AUDNZD, as a result of stronger NZD action, fell from 1.0790 highs towards 1.0740.

• AUDEUR up in smalls, found a 0.6189 high but traded largely around 0.6170.


EVENT RISK TODAY


• No Australian Economic data today

• New Zealand – August trade balance (dairy exports to drop off sharply at the end of the season)

• New Zealand - RBNZ interest rate decision. Widely expected for a no change and to remain at 1.00% (pausing after last months 50bp cut).

• U.S. – August new home sales & Fedspeak from Evans, George & Kaplan.


AUD thoughts :


AUD found a leg up overnight towards 0.6800 resistance levels following the ‘not as dovish as most thought’ commentary from RBA Governor Lowe overnight.

He did state much of the obvious headlines ‘further cuts to the cash rate may be needed in Australia’ and said the RBA Board was prepared to ease policy further if needed.

Lowe also listed global uncertainties, including the Sino-U.S. trade war, together with an extreme drought in Australia and sluggish household consumption as among the factors hurting the country's economic growth.


AUD starts the day around the 0.6800 level and awaits further offshore data and commentary, particularly further developments from the impeachment saga which has rallied markets overnight. No local Economic data to digest. We will be watching the news from the Reserve bank of New Zealand following the surprise 50bp cut from last month however no change expected.Other key important drivers to watch will be U.S. interest rates decline from recent highs, which will further place pressure on the USD as AU-US spreads decline further.


Technical outlook :

AUD 21 day moving average pierced as USD, US rate complex fall.

Technicals lean bullish : the 61.8% Fibonacci level of 0.6678-0.6895 holds as support (0.6760), the 10 & 55 day moving average provide resistance for now.

Important note : Relative strength indexes seem to have turned higher – targeting the 0.6840/0.6850 level if any bull run continues.




ACN: 615 699 888 | AFSL : 502711

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