7th January 2020 - AUD key support threatened on USD continued recovery



Good morning


OVERNIGHT DATA AND HEADLINES


• Gold prices shot to almost seven-year highs while yields on U.S. Treasury and euro zone government debt fell as escalating U.S.-Iranian tensions spurred demand for safe-haven assets. Adding to tensions, Iran also said it was taking another step back from its commitments under a 2015 nuclear deal with six powers that Washington withdrew from in 2018.

• Euro zone business activity remained close to stagnation at the end of last year, a survey showed on Monday, as an upturn in services activity only partially offset a continued decline in the bloc's manufacturing industry. IHS Markit's final euro zone composite Purchasing Managers' Index (PMI), seen as a good indicator of economic health, nudged up to 50.9 in December from November's 50.6.

• A PMI for the bloc's dominant services industry bounced to 52.8 from November's 51.9, above a preliminary reading of 52.4. But a manufacturing PMI out last week showed factory activity contracted for an 11th straight month in December. The upturn in services meant firms were at their most optimistic about the year ahead since May. A composite future output PMI jumped to 59.4 from 57.9.

• Optimism among companies in Britain's dominant services sector surged after Prime Minister Boris Johnson's landslide election win last month, despite continued economic stagnation, a business survey showed on Monday. The business expectations component of the IHS Markit/CIPS UK Services Purchasing Managers' Index (PMI) hit its highest level since September 2018, while order books increased for the first time in four months. The overall PMI in December improved to 50.0 from a preliminary reading for the month - based on responses before the election - of 49.0. It was also higher than November's 49.3. The upward revision to the business expectations index was the largest in the services PMI since mid-2015.

• Gains for internet giants Amazon and Alphabet helped Wall Street's S&P 500 index steady following early losses sparked by rising tensions in the Middle East. Dow Jones down 0.01% at 28,630, S&P 500 up 0.16% at 3,239 and Nasdaq up 0.33% at 9,050.


CURRENCIES


• The U.S DXY index fell from 96.88 down towards 96.55 (0.15%) but regained levels back to 96.68.

• EUR rebounded, jumping up from 1.1155 towards a 1.1206 session high.

• GBP vaulted higher from 1.3062 up towards 1.3174 highs.

• USD/JPY weakened 0.34% from 107.91 up towards 108.50.

• AUD made small gains towards 0.6957 high but fell back lower towards 0.6922.

• NZD dropped from 0.6680 highs down towards 0.6650.

• AUDNZD found fresh lows down towards 1.0388 but regained back above 1.0400.

• AUDEUR continued course lower, dropping from 0.6225 down towards 0.6188.

• AUDGBP dropped from 0.5310 highs down towards 0.5260.


TREASURIES


• The Treasury yield curve was flatter as heightened tensions between the United States and Iran continued to boost demand for safe-haven assets.

• The short end of the yield curve was higher, with the two-year yield up 1.3 basis points to 1.539%.

• Germany’s 10-year bond dropped to its lowest in over three weeks. The bond briefly fell to -0.31%. Yields later pulled back to -0.292%, flat on the day.

• Australian 10-year yields were down to 1.219% from a five-month high of 1.42% hit last week. Three-year bond futures firmed 2 ticks to 99.205 implying a yield of 0.795%.


COMMODITIES


• Gold surged to a near seven-year high and Palladium surpassed $2,000 an ounce for the first time. Spot gold was up 1.00% at $1,566.00 per ounce after rising to $1,579.72 earlier in the session.

• Iron ore futures in China extended gains, rising for the fourth straight session, as higher weekly utilisation rate pointed to firm demand.

• Copper edged higher as a rise in oil prices offset softer Chinese economic data and an escalation in tension between the U.S. and Iran. LME copper ended 0.1% higher at $6,138 a tonne, towards an 8 month high.

• Oil prices edged up after Brent touched above $70 a barrel. Brent crude futures gained 35 cents to $68.95 a barrel after soaring to a high of $70.74 a barrel from Friday's settlement. U.S. WTI crude was up 24 cents at $63.29 a barrel after hitting $64.72, its highest since April.

ECONOMIC DATA TODAY


• Australian Economic data today - December ANZ job ads (last –1.7%). In a downtrend as labour market cools.

• NZ - Dec QV house prices %yr (last 3.3%). Strong uptrend on lower rate environment.

• China - Dec foreign reserves CNYbn (last 3,095.6). Will remain broadly stable in 2020.

• Eur - Nov retail sales %yr (last 1.6%). Volatile month to month. 3m avg around 2.5%yr.

• Eur - Dec core CPI %yr (last 1.3%). Lifted on base effects. Trend stuck around 1%.

• US - Nov trade balance US$bn (last –47.2). Deficits to persist.

• US - Dec ISM non–manufacturing (last 53.9). Domestic demand continues to support services.

• Can - Dec Ivey PMI 60. Points to strong conditions, in contrast to rest of world.

AUD THOUGHTS


AUD looked vulnerable overnight as mounting tensions in the Middle East and continued economic impact from the domestic bushfires saw AUD edge down towards 0.6922 lows.

The move was again led by flows into and out of the safe-haven JPY and big cross selling interest against EUR & GBP.

The devastation of the bushfires is likely to hit consumer confidence hard at a time when households were already on a spending strike because of sluggish wage growth. Investors have reacted by narrowing the odds on another rate cut from the Reserve Bank of Australia (RBA). A move in February is now put at a 46% probability, compared to less than 20% a couple of weeks ago. A quarter-point easing to 0.5% is almost fully priced in by June.


Australian data out this week includes approvals to build new homes on Wednesday, the trade balance on Thursday and retail sales for November on Friday. The latter are actually expected to show a solid increase for November, but largely because sale events such as Black Friday pulled spending forward from Christmas.

Without any major offshore data or events, AUD selling interest likely to persist into the week.


TECHNICAL OUTLOOK


AUD key support threatened on the USD’s recovery.

AUD buoyed but cannot make a serious test of the 10-DMA - falls near 0.6925, gives techs a bearish tint.

First initial support (21 day moving average @ 0.6917) not breached as yet.

0.6880/0.6920 supports could be potentially threatened, break below targets 0.6810/15, 0.6750/55.

Daily, monthly RSI’s slide lower as AUD gains erased.




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