26th November 2019 - AUD testing lower support despite better risk setting



Good morning


OVERNIGHT HEADLINES AND DATA


• The USD rose and global equity markets rallied on revived hopes the United States and China could soon sign an interim deal to end their prolonged trade war lifted investor sentiment. The big driver of equity market gains were reports that an elusive "phase one" U.S.-Sino trade agreement was near. Adding to the positive mood was the weekend announcement that China would seek to improve protections for intellectual property rights, a sticking point in the talks.

• US Chicago Fed National Activity Index fell to 0.71 in October, down from -0.45 and worse than expectations of -0.20.

• Canadian Wholesale Trade Sales for September rose 1.0%, beating forecasts of an unchanged result.

• The Dallas Fed Manufacturing Activity Index for November rose to -1.3,. up from -5.1 and better than expectations of -3.8.

• November IFO survey for Germany index rose to 95.0 from 94.7, leaving it at a four-month high, although still close to its 7-year low. Both the current assessment and expectations improving from low levels.

• The S&P 500 and the Nasdaq indexes hit record highs on a report that the U.S. and China were nearing a trade truce. Dow up 128 points (0.46%) at 28,003, S&P 500 up 19 points (0.62%) at 3,129, Nasdaq up 100 points at 8,619.

• In the U.K. polls continued to show the ruling Conservatives as runaway favourites to win the Dec. 12 election with a pledge to implement Brexit and halt 3-1/2 years of political uncertainty.


CURRENCIES


• The U.S. DXY rose on overnight trade optimism. Up 0.09% at 98.35.

• CNY firmed, trading up almost 0.1% at 7.0360. PBOC set the midpoint rate at 7.0397 with CNH also up 0.1% at 7.0356.

• EUR was down 0.12%, falling from 1.1030 towards 1.1005.

• JPY weakened 0.29% - from 108.75 up towards 108.95.

• GBP climbed back above 1.2900, drifting further from recent lows. GBP was 0.36% higher closing at 1.2900.

• AUD weakness kicked in dragging it lower from 0.6799 down towards 0.6765

• NZD followed AUD lower, falling from 0.6425 down towards 0.6393.

• AUDNZD was unable to revisit 1.0600 resistance, contained in a 1.0565 / 1.0595 range

• AUDEUR initially dipped from 0.6165 down towards 0.6145 however regained back up to 0.6155.

TREASURIES


• U.S. Treasury yields slid ahead of the Treasury Department's scheduled sale of $113 billion in coupon-bearing supply this week.

• Benchmark 10-year notes rose 3/32 in price to push their yield down to 1.765%.

• Two-year note saw yields increase from 1.610 up towards 1.625%.

• The German benchmark 10-year bond yield rose two basis points in early London trading before easing to trade almost flat on the day at -0.349%.


COMMODITIES


• Gold fell for a fourth straight session, hitting a two-week low as investors' appetite for riskier assets increased on renewed trade optimism. Spot gold fell 0.5% to $1,455 per ounce

• Copper prices rose after positive comments from the United States and China. Benchmark LME copper ended 0.2% up at $5,868 a tonne after touching $5,917, its highest since Nov. 12.

• Oil prices were little changed - Brent crude futures were down 6 cents at $63.33 a barrel. West Texas Intermediate (WTI) crude was up 1 cent at $57.78.


ECONOMIC CALENDAR TODAY


• Australia – No Economic data however RBA’s Debelle speaks in Canberra.

• Australia - RBA’s Lowe gives speech titled “Unconventional Monetary Policy: Some Lessons from Overseas”

• New Zealand – Q3 real retail sales (higher spending on durables and hospitality boosting core).

• U.S. - October new home sales

• U.S. - November consumer confidence

• U.S. – November Richmond Fed index


AUD THOUGHTS


AUD continued to track lower overnight, falling from a 0.6799 high down towards 0.6765. NY market closing saw AUD up at 0.6777.


Today a busy day ahead at the RBA beginning with Deputy Governor Debelle speaking at the ACOSS National Conference in Canberra. Debelle speaks on the topic of “Employment and Wages” at 10.50am local time. The speech could carry some dovish overtones due to the failure of wage inflation to accelerate back to levels consistent with hitting the RBA’s CPI inflation target of 2-3%.

This is followed by the RBA Governor Lowe's speech dedicated to unconventional measures which is unlikely to lay out a detailed plan for how they might be implemented in Australia; he will probably focus instead on extracting general principles from the experience of such policies abroad. He has written about this before in his capacity as Chair of the BIS Committee on the Global Financial System.

RBA rhetoric could, however, inch incrementally closer to acknowledging that such policies might one day be introduced locally too. Already, when reflecting on the October decision to cut the policy rate, the bank revealed it did so in the knowledge that “rates were already very low and that each further cut brings closer the point at which other policy options might come into play”.

A raft of Economic data from the U.S. will be released tonight.


AUD testing 0.6765 support levels (10 day lows) – if broken will find next support level ahead of 0.6750. Offering interest at 0.6810 levels.


TECHNICAL OUTLOOK


AUD Key Fibonacci pressured on persistent U.S. strength.

Hope for US-Sino trade de-escalation offers no help to AUD longs. Global stocks gain but bond yields slip, AU-US spreads widen, USD very bid.

AUD steadily drops in NY, pierces 61.8% Fib of 0.6666. Technicals favour bears; RSIs fall while 10 & 55-DMAs exert bearish influence.



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