3rd December 2019 - Risk aversion sees USD weaker across the board

Good morning


• USD and global stock markets retreated after Trump said he would restore tariffs on some imports from Brazil and Argentina, overshadowing data that showed Chinese and euro zone economies were stabilizing.

• Trump ambushed Brazil and Argentina on Monday, announcing he would restore tariffs on U.S. steel and aluminium imports from the two countries in apparent retaliation for currency weakness he said was hurting U.S. farmers. "Effective immediately, I will restore the Tariffs on all Steel & Aluminium that is shipped into the U.S. from those countries," Trump wrote in an early morning tweet that sent officials from both countries scrambling for explanations from Washington. He added that Brazil and Argentina were "presiding over a massive devaluation of their currencies." In fact, the opposite is true: Both countries have actively been trying to strengthen their respective currencies against the dollar. The real and the peso have been buffeted by weakness partially linked to Trump's trade battle with China.

• Data from the Institute for Supply Management (ISM) showed the U.S. manufacturing sector contracted for a fourth straight month in November as new orders slid. ISM said its index of U.S. factory activity dropped 0.2 point to a reading of 48.1 in November. A reading below 50 indicates contraction in factory output, which accounts for 11% of the U.S. economy. The index needs to break below 42.9 to signal a recession.

• U.S. construction spending unexpectedly fell in October as investment in private projects tumbled to its lowest level in three years also weighed on markets.

• U.S. stocks fell - weak domestic manufacturing data fanned worries of a slowing economy. Dow Jones -224 points (0.66%) 27,867, S&P 500 -25 points (0.58%) 3,122 and Nasdaq -106 points (1.23%) 8,558.83.


• The USD fell to two-week lows – DXY index was last down 0.45% at 97.83 from 98.35.

• EUR jumped up 0.60% from 1.1000 lows to 1.1082 highs.

• GBP was the worst performer, ending the day around 1.2945, unchanged from Friday’s close as polls suggest a hung Parliament.

• JPY strengthened 0.51% against the USD, falling from 109.50 towards 108.95.

• CNY opened at 7.0282, jumping up towards 7.0446 before falling to 7.0380 late NY close.

• AUD firmed after surprisingly upbeat Chinese data and a weaker USD – AUD edged up from 0.6770 towards 0.6823 highs.

• NZD followed higher, from 0.6440 up towards 0.6510 highs

• AUDNZD found support at 1.0475 lows and traded within a 15 point range.

• AUDEUR jumped up towards 0.6165 highs however ended just above 0.6150 into close.


• The Treasury yield curve was steeper following two reports showing U.S. factory activity and construction spending fell unexpectedly. The U.S. yield curve, measured as the difference between the yields on two- and 10-year Treasury notes, was at 20.9 basis points, up 4.9 basis points from Friday's close.

• The steepening was driven primarily by a dip in the two-year yield, which retraced most of the early morning's gains. It was last at 1.610%, up 1.8 basis points on the day.

• The U.S. 10-year yield was last at 1.831%, up 5.5 basis points on the day.

• Germany's borrowing costs rose. German bond yields jumped, with 10-year yields up 8 basis points at -0.272%.


• Gold steadied after paring losses on weak U.S. manufacturing data. Spot gold was down in small (-0.08%) at $1,463 per ounce

• Steel futures in China rose for a third consecutive session on Monday, as stronger-than-expected factory activity readings for November boosted sentiment. Benchmark spot 62% iron ore for delivery to China stood at $89 per tonne, unchanged from the previous session.

• Zinc sank to its lowest in nearly three months and other industrial metals also posted losses. Benchmark LME zinc prices fell 1.3% to $2,243 a tonne. LME aluminium rose 1.1% to close at $1,790 a tonne. LME three-month copper edged up 0.3% to end at $5,883 a tonne.

• Oil futures gained over 1% on hints OPEC and its allies may agree to deepen output cuts at a meeting this week and as rising manufacturing activity in China suggested stronger demand. Brent futures were up 76 cents, or 1.3%, to $61.25 a barrel while U.S. WTI crude was up 89 cents, or 1.6%, to $56.06.


• Australian Economic Data: Q3 net exports (Export uptrend continues and imports flat). Q3 current account (last $bn5.9, market expecting $bn6.1 - Back–to–back surpluses. Trade surplus at record highs)

• Australian RBA policy decision (no change widely expected. To Remain @ 0.75%. Temporary pause to monitor the impact of the three rate cuts).


Risk aversion took over financial markets overnight with Trump announcing immediate tariffs of base metals’ imports coming from South America. Earlier in the day, China said it won’t allow the visit of the US military to Hong Kong and announced sanctions against several US non-government organisations for encouraging protesters.

As a result, USD sold across the board with the beloved AUD ratcheting higher, finally breaking through 0.6800 minor resistance to a 0.6823 top where it practically opens this morning.

Today we have some tier 1 Australian data releases with Q3 current account and net exports. Markets are expecting a solid outcome from these numbers.

Today will also be the very last RBA meeting for the year with a widely tipped ‘no change’ expected and rates to remain at 0.75%. The language will be important as it will set up the early part of 2020 with many forecasters in the market expecting another 25 bp cut (Westpac calling for 2 more cuts).

The broad based USD weakness will continue to underpin AUD gains overnight – all eyes on the RBA release at 2.30pm.


AUD technicals offer little resistance to bullish factors - Global bond yields rally to help AUD test the 10-DMA & thin daily cloud. AU-US yield spreads tighten.

AUD rally extends, 21 day moving average the target. Finally pierced, 0.6825 neared.

Little pull back seen, AUD just below day's high late in the day. Rising RSIs, break above daily cloud, 10 & 55-DMA give techs a bullish tint.

Next resistance targets @ 0.6875 followed by 0.6920. Supports at 0.6805.

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