3rd January 2020 - AUD consolidates lower from recent fresh highs



Good morning


OVERNIGHT DATA AND HEADLINES


• The USD snapped a four-day losing streak and global equity markets jumped at the start of 2020 with a shot of Chinese stimulus, ensuring last year's record-breaking rally remained intact.

• The number of Americans filing claims for jobless benefits edged lower last week, a positive signal for the U.S. labour market amid recent signs new claims may be trending slightly higher. Initial claims for unemployment benefits decreased 2,000 to a seasonally adjusted 222,000 for the week ended Dec. 28.

• China's factory activity expanded at a slower clip in December, pulling back from a three-year high the previous month as new orders softened. The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) for December eased to 51.5 from 51.8 missing analysts' expectations that the reading would hold steady. It remained above the 50-mark that separates expansion from contraction for the fifth straight month.

• U.S. stocks extended their rally into the new year, with all three major indexes hitting record highs. Dow Jones up 0.82% at 28,771, S&P 500 up 0.54% at 3,248 and Nasdaq up 1.02% at 9,064.


CURRENCIES


• The USD recovered from a six-month low – DXY index adding 0.46% to jump up to 96.83 from 96.40.

• EUR fell from 1.1225 highs down towards 1.1162.

• JPY initially found strength, falling from 108.85 towards 108.25 but lost some gains trading back up to 108.55.

• GBP was on track for its biggest daily loss in two weeks, last trading at $1.3138, down 0.86% overnight.

• AUD fell from 0.7020 highs yesterday down towards 0.6976 lows. AUD closed up slightly at 0.6985.

• NZD fell from 0.6735 down to 0.6683 lows.

• AUDNZD remained in recent 1.0400 / 1.0450 ranges, closing at 1.0432.

• AUDEUR traded within a tight 0.6240 / 0.6260 range for the most part.


TREASURIES


• U.S. Treasury yields fell in light post-holiday trading, after longer-dated debt posted its best yearly returns since 2014.

• U.S. 10-year yields were last at 1.88%, holding below the three-month high of 1.97% reached on Nov. 7, but up from 1.69% at the beginning of December (three-year low of 1.43% reached on Sept. 3).

• The yield curve between two-year and 10-year notes held just below 36 basis point level reached on Tuesday, which was the steepest since October 2018.

• Germany's 10-year bond yield briefly hit -0.16% on optimism better U.S.-China trade relations will spur global growth however soon slid to -0.23%.


COMMODITIES

• Spot gold was up 0.7% at $1,527.73 per ounce, having notched a three-month high of $1,531.20 earlier in the session.

• Shanghai steel futures reversed course and closed lower, as higher inventories offset an early rally spurred by a monetary policy easing measure by the China’s central bank. Prices for spot cargoes of benchmark iron ore with 62% iron content for delivery to China settled at $93.50 a tonne.

• Copper prices rose towards eight-month highs as demand expectations were boosted by economic measures in China. Benchmark LME copper closed 0.2% up at $6,188 a tonne.

• Oil prices were mostly flat, supported by signs of improving Washington-Beijing trade relations and rising tensions in the Middle East but pressured by a strong USD. Brent crude futures lost 14 cents to trade at $65.86 a barrel while U.S. WTI crude was 24 cents lower at $60.82 per barrel.

ECONOMIC DATA TODAY


• No Australian Economic data releases today.

• Europe - Nov M3 money supply %yr (last 5.6%). Credit growth is currently solid.

• U.S. - Nov construction spending (last -0.8%). Expansion of capacity not a high priority for US firms.

• Dec ISM manufacturing (last 48.1, mkt forecast 48.6). ISM likely to follow other PMI's higher in coming months.

• FOMC Meeting Minutes, Dec 11 - Further detail on Committee's views on risks into 2020.

• Fedspeak - Fed's Evans Takes Part in Panel Discussion at AEA


AUD THOUGHTS


The USD surged overnight despite risk appetite remaining strong. As a result, AUD pushed lower towards 0.6975 lows.

No major catalyst at hand - no political updates on the US-China trade war or Brexit with the only improvement in U.S. data coming from jobless claims.

Commodities gained with spot gold and base metal prices also improving overnight.

Australian yields have fallen faster than US, with AU-US spreads widening.


The next major focus for the market will be U.S. manufacturing data out tonight, which will be watched for any indications of improvement after the U.S. and China last month agreed to the first phase of a trade deal.

The FOMC meeting minutes will also be watched detailing further views on the risks into 2020. No Australian data releases today.


For now, USD holding onto gains and remains positioned for steady improvement which should see AUD weakness settle in.


TECHNICAL OUTLOOK


AUD falls away from the 23.6% Fib of 0.8136-0.6670 (0.7014) – falls towards 0.6975.

Daily RSI turns from overbought territory, market needs to digest Dec. gains first.

First support target at 0.6960 (10 day moving average).

Dip buyers lurk, 0.6880/0.6920 remains decent support - monthly highs, 200-DMA sit in that zone.

A break below that support puts rally in jeopardy, 0.6750/70 then targeted

Latest CFTC stats show net-short AUD positions remain large.



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