29th April 2020 - AUD bulls maintain traction above 0.6500


Good morning

OVERNIGHT DATA AND HEADLINES


  • Stock markets across the globe moved in and out of losses, whipsawed by Wall Street as mixed corporate earnings reports were not enough to offset a wild ride in oil prices. 

  • The S&P 500 and Nasdaq indexes eased as scientists warned of an increase in U.S. coronavirus deaths if states lifted lockdowns too quickly, while healthcare stocks slumped after a sales warning from Merck. Dow Jones fell 32.23 points, or 0.13%, to 24,101.55, the S&P 500 lost 15.09 points, or 0.52%, to 2,863.39 and the Nasdaq dropped 122.43 points, or 1.4%, to 8,607.73.

  • U.S. consumer confidence tumbled to near a six-year low in April as tough measures to curb the spread of the novel coronavirus sharply disrupted economic activity and threw millions of Americans out of work. The consumer confidence index dropped to a reading of 86.9 this month, the lowest since June 2014, from 118.8 in March. Economists polled by Reuters had forecast the index would fall to 87.9 in April.

  • The goods trade deficit increased 7.2% to $64.2 billion last month. While a shrinking import bill is a positive in the calculation of GDP, declining imports mean less inventory accumulation, which could offset trade's contribution to GDP. In March, goods imports dropped 2.4% to $191.9 billion after decreasing 2.5% in February. Goods imports tumbled 9.6% in March from a year ago. There were sharp decreases in imports of consumer goods and motor vehicles and parts. Imports of food, industrial supplies and capital goods rose last month. Exports of goods plunged 6.7% to $127.6 billion in March. There was a broad decline in exports last month, with shipments of industrial supplies dropping 7.5% and motor vehicles and parts plummeting 17.8%.

  • The S&P CoreLogic Case-Shiller 20-metro-area house price index increased 3.5% from a year ago in February after rising 3.1% in January. House price inflation could ease as record high unemployment slows demand for homes. Homebuilding dropped by the most in 36 years in March, the government reported this month.

  • The Canadian economy is likely in its deepest recession on record and will only recover modestly over the coming year as it takes a direct hit from the coronavirus outbreak and a collapse in oil prices, a Reuters poll of economists showed. After the economy contracted sharply last month and lost a record 1.01 million jobs, economists have slashed back their economic forecasts due to lockdown measures and reeling oil prices which hit a record low last week as global economic activity came to a halt

CURRENCIES

  • USD dropped for the second day as rising stocks reflected improving risk appetite, and as investors rebalanced portfolios for month-end. DXY index initially fell 0.7% to 99.49 but closed up at 100.00 into the NY close.

  • EUR fell from 1.0888 down towards 1.0824 into the close after Fitch downgraded Italy’s credit rating.

  • GBP started stronger, trading up towards 1.2518 but was back down at 1.2432 into the close.

  • CNY  steadied, helped by the central bank's firmer-than-expected guidance and optimism the economy was on a stronger footing. Onshore CNY opened at 7.0830 and was changing hands at 7.0860.

  • AUD jumped 0.56% to reach 0.6514, the highest since March 11. 

  • NZD gained 0.21% from 0.6000 up towards 0.6073 highs.

  • AUDNZD made another spectacular jump higher, trading to a 1.0753 high before giving up gains at 1.0715.

  • AUDEUR saw the break through 0.6000, trading as high as 0.6010 and ending the session back at 0.6000. 


TREASURIES

  • Traders looking for stronger indications of the economy's path through the COVID-19 pandemic sent U.S. Treasury yields lower on Tuesday.

  • The U.S. central bank is slowly reducing its purchases of Treasuries to an average of $15 billion per day last week from a peak of $75 billion per day from March 19 to April 1.

  • The benchmark 10-year yield was last down 4.4 basis points at 0.6098%.

  • The 2-year U.S. Treasury yield was last down 2.1 basis points at 0.2092%.

  • Italian government bond yields continued to fall on Tuesday, reflecting investor relief that the country had avoided a ratings downgrade and had laid out plans to re-open the economy, even as analysts expressed caution about the outlook.


COMMODITIES

  • Gold prices dipped to a near one-week low as investors moved towards riskier assets, encouraged by signs that coronavirus-related restrictions were easing. Spot gold fell down 1.4% at $1,691 per ounce but rebounded towards $1,708.

  • Benchmark iron ore futures fell 1.7% to 595 yuan a tonne whilst spot prices of iron ore with a 62% iron content for delivery to China stood at $84.5 per tonne, unchanged from the previous session.

  • Copper prices steadied as the market focused on stagnating economic activity and falling demand due to the coronavirus crisis. Benchmark LME copper was down at $5,203 a tonne, touching a high of $5,251 earlier.

  • U.S. crude prices settled lower, falling about 3% as domestic stockpiles were expected to have risen closer to record highs amid tightening storage despite plans to cut production during the COVID-19 pandemic

  • U.S. West Texas Intermediate (WTI) crude was down 44 cents, or 3.4%, at $12.34 a barrel. Global benchmark Brent crude settled up 47 cents, or 2.3%, at $20.46 a barrel, following a 6.8% slide on Monday


ECONOMIC CALENDAR TODAY

  • Australia - Q1 CPI (last 0.7%, forecast 0.2%). Q4 was up in drought (food), petrol (volatility) and tobacco (tax).

  • Australia - Q1 CPI %yr (last 1.8%, forecast 1.9%). Q1 falls in petrol & holidays, while housing broadly flat. 

  • New Zealand - March trade balance $m (last 595, forecast 700). Exports held up through China lockdown.

  • Europe - April economic confidence (last 94.5). PMI’s have highlighted the dark shadow over conditions.

  • Germany - April CPI %yr (last 1.3%, forecast 0.8%). Inflation poised for an abrupt slowdown.

  • US - Q1 GDP annualised (last 2.1%, forecast -3.7%). Advance read will show a contraction in US GDP.

  • US - March pending home sales (last 2.4%, forecast -10%). Set to seize up amidst lockdown restrictions.

  • US - FOMC pending decision (last 0.125%, forecast 0.125%). FOMC have provided a lot of support, need time to assess.


AUD THOUGHTS AND TECHNICAL ANALYSIS

AUD gained another 50 or so points overnight, this time trading over 0.6500 resistance to reach a 0.6514 high. It closed just under the 0.6500 level where it opens around 0.6490.

Upbeat risk sentiment continued, allowing equity and copper rallies to extend while yields on Australian 3-year bonds rose sharply from the 0.25% area, increasing the AUD's yield advantage over the USD. 


Risk-on trading also drove the USD broadly lower against most major and EM currencies - a day before the Federal Reserve was due to conclude its latest two-day policy meeting and as investors rebalanced portfolios ahead of the end of the month. Markets will be watching to see if the U.S. central bank gives any clues on its likely future path after it responded to the economic devastation of the novel coronavirus outbreak by slashing interest rates, resuming bond-buying and backstopping credit markets. Central bank meetings this week and rebalancing for month-end will make it difficult to read market moves in the coming days.


Tier 1 data releases in Australia will focus on Q1 CPI with the headline number forecasted to be 0.2%qtr, 1.9%yr – with falls in holiday travel (impacted by the bushfires and COVID disruptions) and in petrol prices (with an even sharper drop in fuel prices likely in Q2). Housing inflation (dwelling price purchases and rents) is expected to be broadly flat. The trimmed mean CPI printed 0.4%qtr, 1.6%yr in Q4 and is a forecast 0.3%qtr, 1.6%yr for Q1 – which would see the 6 month annualised pace slow to 1.4%. This subdued picture is consistent with: weak wages growth; patchy consumer spending; and softness in housing inflation.


Tonight, centre stage will be the FOMC announcement and aiding commentary whilst first-quarter GDP snapshot will likely have contracted at a 4.0% annualised rate in the January-March quarter, which would be the steepest pace of decline since the Great Recession and end a record 11 straight years of growth. The U.S. economy grew at a 2.1% rate in the fourth quarter. 


For the AUD, opens this morning at 0.6490. AUD bulls continue to take advantage of the risk on scenario, rallying AUD further above the 61.8% Fibonacci (0.6450) of the 0.7032-0.5510 range.

Price action has bolstered already bullish technicals as daily and monthly RSI imply upside momentum remains. Should risk remain buoyant, AUD longs are likely to test 0.6540 resistance, which is the March 11 high. 

A break there should trigger stops and extend the rally. Daily charts show minimal resistance after 0.6540 until the 0.6670/90 area where the 76.4% Fibo of 0.7032-0.5510, March 9 daily high and 200-DMA sit (0.6668).



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