6th February 2020 - Risk rally & Gov Lowe comments sees AUD rebound



Good morning


OVERNIGHT DATA AND HEADLINES


• The USD gained and a gauge of global equity markets surged for a third day as expectations of more central bank stimulus and media reports that suggest scientists are closing in on a vaccine for the deadly coronavirus boosted sentiment.

• Wall Street rallied for a third straight day after a clutch of positive U.S. data – Dow Jones rose or 1.72% to 29,301, S&P 500 gained 1.20% to 3,337 and the Nasdaq added 0.55% to 9,385.

• ECB commentary from Lagarde who said that the EU faced short-term uncertainties caused by global risks around trade, geo-politics and the coronavirus. She also stressed that climate change would be a key part of the ongoing strategy review. ECB’s Lane meanwhile said that EU inflation was still too low and would pick up over the next few years and that the new normal in regards to interest rates would be “positive but low”.

• U.S. ADP Employment showed that 291k jobs were created in January, this being the best result since May 2015, up from 199k and easily beating expectations of 157k. The report noted that mild winter weather had provided a significant boost to employment with roughly half the gain coming from construction and leisure/hospitality.

• U.S. trade deficit for December widened slightly to $48.9 bio while the Canadian trade deficit shrank more than expected to $0.37 bio. Little reaction to either release.

• EU reported that they were looking at rewriting MIFID rules post Brexit, a move that would target operations of London banks.

• U.S. Markit Services PMI for January was upgraded to 53.4 against expectations of no change at 53.2 with the Composite PMI also upgraded to 53.3 from an initial reading of 53.1.

• U.S. January ISM Non-Manufacturing printed at 55.5, up from 54.9 and better than expectations of 55.0.


CURRENCIES

• The USD gained against the safe-haven JPY and CHF, as risk appetite rose on reports of a possible treatment for the new coronavirus out of China and stronger U.S. Economic data.

• EUR fell from 1.1047 highs back under the 1.1000 support to 1.0992 lows.

• GBP also dived lower from 1.3070 highs down towards 1.2954 lows.

• China's CNY surged past 6.9800, reversing intraday losses on reports that a Chinese university had found a drug to treat coronavirus. CNY down towards 6.9650.

• AUD received a helping hand as Gov Lowe said there were risks to cutting rates again – AUD continued higher towards 0.6774 highs but ended around 0.6745.

• NZD continued to find selling interest from 0.6500 resistance back down towards 0.6470 lows.

• AUDNZD improved, jumping up from 1.0400 levels towards a 1.0440 high.

• AUDEUR was back through 0.6100 reaching 0.6150 high.


TREASURIES


• U.S Treasury yields rose as traders reacted to positive reports on efforts to counter the coronavirus and a strong private-sector jobs report.

• The benchmark 10-year yield was up 4.5 basis points in afternoon trading at 1.6456%.

• The two-year U.S. Treasury yield was up 2.6 basis points at 1.4411% in afternoon trading.

• Euro zone government bond yields rose – the 10-year German government bond yield rose as much as 4 basis points to -0.36%, its highest level since Jan.29.

COMMODITIES


• Gold rose on bargain hunting, reversing course from a two-week low touched earlier - Spot gold rose 0.28% to $1,556.55 per ounce.

• The most-traded Dalian iron ore contract extended losses into a third session after the holiday, with a 1.5% drop. Spot iron ore prices fell further, with the benchmark 62% grade settling at $81.80 a tonne on Tuesday, the lowest since Nov. 14.

• Copper prices rebounded to their highest level in more than a week - Three-month LME copper hit $5,769 a tonne, its highest since Jan. 27, before paring gains to $5,722.

• Oil prices jumped about 2% on media reports that suggested scientists were developing a vaccine for the fast-spreading coronavirus. Brent crude oil futures ended the session up $1.32, or 2.5%, at $56.46 a barrel while U.S. WTI crude gained $1.14, or 2.3%, to settle at $50.75. Both contracts rose more than 4% during the session.


ECONOMIC DATA TODAY


• Australian Economic data today - December retail sales (last 0.9%, forecast –0.2%). 'Black Friday' boost unwinds. Hit from bushfires?

• Australian Q4 real retail sales (last –0.1%, forecast 0.3%). Slightly better quarter but still very weak.

• Australian Dec trade balance, AUDbn (last 5.8, forecast 5.6). Exports +3.7% (strong volumes), imports rebound, +1.7%.

• Europe - ECB speak – President Lagarde in Brussels.

• US Initial jobless claims, '000 (last 216k). Very low, with firing remaining absent.

• Fedspeak – Kaplan, Economic Outlook in Dallas; Brainard on payments.


AUD THOUGHTS


Yesterday’s comments from RBA Governor Lowe, which reiterated the message from Tuesday’s RBA meeting indicating the hurdle for more near-term easing is high, provided another boost for AUD up towards 0.6774 highs. However. Stronger U.S. Economic data releases saw the USD pave way for gains across the board with AUD falling back to a modest 0.6745 level as we open this morning.


Today, Australian retail sales data will be released (11.30am) with an expectation of a pullback from the last months result (large 0.9% m/m increase in November), a result of ‘Black Friday’ sales. The Q4 2019 retail sales volumes will also be released with forecasts expecting a modest 0.3% q/q increase, an improvement given sales volumes declined over the year to Q3 2019.


Demand in the AUD seems to have taken flight and expected to have grown ahead of the 0.6700 level. Offering interest remains in the 0.6790/00 region.

Market will be closely watching the retail sales numbers today – any deviation either side of the coin will result in AUD swings.


TECHNICAL OUTLOOK


AUD longs lose some traction – AUD buoyed in early NY on upbeat risk sentiment, RBA's Lowe.

Early lift above 0.6770 stalls after upbeat Jan ADP & ISM non-mfg PMI. USD & US Treasuries gains drive AUD/USD near 0.6740, sits nearby late.

Daily doji concern longs but rising daily, monthly RSI soothe some concerns.

Longs need break above the Jan 29 high to gain greater control - AU Dec retail sales, trade data are risks in Asia, RBA SOMP risk on Friday.



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