28th May 2019 - AUD/USD bears remain in control near 0.6920 despite fewer catalysts


Good Morning,

Market Headlines

- Market action overnight had a European focus, with the US and UK on holiday. Markets were relieved that the weekend’s European elections resulted in less support for populist/anti-EU parties than feared, lifting the Eurostoxx 50 equities index by 0.5%, and pushing German and French bond yields lower.


- U.S. stock markets were closed on Monday on account of Memorial Day commemorations


- US 10yr treasury futures yields slipped from 2.32% to 2.30%, the physical markets closed. The chance of a Fed rate cut by December, implied by Fed fund futures, remained at 130%.


- Australian 3yr yields slipped from 1.13% to 1.12%, while 10yr yields fell from 1.57% to 1.54%. Markets continued to price a 100% chance of an RBA rate cut on 4 June.


- Gold hit a more than one-week peak as trade tensions between the United States and China lifted appetite for the safe haven asset. Spot gold inched up half a percent to $1,285.34 per ounce


- China's iron ore prices scaled a fresh record on Monday as concerns over supply intensified, with stocks at the country's ports shrinking and investors worried about another Brazil mine dam at risk of collapsing. Iron ore inventory at Chinese ports has slid further to the lowest since early 2017. Spot iron ore jumped to the highest in five years at $106.50 a tonne.


- Oil prices rose more than 1%, supported by Middle East tensions and OPEC-led supply cuts as well as continued crude disruptions from Russia after a contamination problem discovered last month. Brent settled at $70.11, rising $1.42, or 2.07%, after having fallen by about 4.5% last week. U.S. West Texas Intermediate crude futures were up 59 cents, or 1%, to $59.24 a barrel.

Currencies

· The US dollar index is up 0.2% on the day, closing @ 97.75.

· EUR slipped from 1.1215 to 1.1187.

· USD/JPY ranged between 109.45 and 109.60.

· AUD slipped from 0.6940 to 0.6915.

· NZD slipped from 0.6560 to 0.6540.

· AUD/NZD slipped from 1.0580 to 1.0565.

· AUD/EUR remained in recent 0.6170 / 0.6190 ranges.


Equities/Commodity Markets

· FTSE closed at 7278, DAX +0.5% at 12071, CAC +0.4% at 5336, Nikkei +0.3% at 21183, ASX 200 -0.1% at 6452, Shanghai Comp +1.4% at 2892

· Dow closed at 25586, S&P closed at 2826, NASDAQ closed at 7637

· US 2yr yield +0bps at 2.16%. US 10yr +0bps at 2.32%. VIX Volatility +0% at 15.85

· Commodities CRY +0% at 178.63, Natural gas -1.0%, Cotton +0%, Crude Oil +1.0%, Copper +0.5, Wheat +0%, Sugar +0% Gold at $1286/oz


AUD Thoughts

- Pessimism surrounding global trade and politics confines moves amid no major data.

- Increase in Iron ore and return of the US traders can entertain market players.


The AUD/USD pair is taking the rounds near 0.6920 during the early Asian session on Tuesday. Despite the US holiday-led inactivity, the quote remained largely suppressed as political tension amid the US and China weighed on the Aussie.

While the US President Donald Trump’s statement showing lack of readiness to make a trade deal with China initially prompted the sellers, China’s response, as conveyed via state media, further strengthened the case of a no trade deal among the global giants.

With the Aussie generally considered as a global risk barometer, downbeat market sentiment led by the EU election results could also be the reason for the pair’s latest decline.


Looking forward, Australia’s weekly ANZ-Roy Morgan consumer confidence release will be the first to entertain traders ahead of an active day to be marked by the return of the US players. It should also be noted that the US housing market index and consumer confidence figure might add fuel into the likely volatile session ahead.

At the political front, the US-China stalemate is likely to remain for a bit longer while developments from the US-Japan discussions could offer intermediate trade opportunities.

Furthermore, prices of Australia’s largest export item Iron Ore has recently been higher on the back of supply constraints, which in turn could confine the Aussie’s downside.


Technical Outlook

- Sustained break of 0.6935/40 becomes prerequisite for the quote to aim for 0.7000 and 50-day simple moving average (SMA) level of 0.7045

- Meanwhile, 0.6900 and 0.6860 can entertain near-term sellers ahead of pleasing them with the 2016 low near 0.6830.


Event Risk Data

· No Australian Economic data today.

· Euro Area: Apr M3 money supply and credit growth data are released and will be in greater focus ahead of next week’s ECB meeting TLTRO discussions.

· May EC business climate indicator is expected to slightly decline to 0.40 from 0.42.

· US: Mar S&P/Case-Shiller home prices and FHFA house prices data are released. May Conference Board consumer confidence is expected to edge up to 130.0 from 129.2.

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