8th April 2020 - Strong gains for the AUD, pause ahead of key resistance



Good morning

OVERNIGHT DATA AND HEADLINES


  • U.S. job openings fell in February, suggesting the labor market was losing momentum even before stringent measures to control the novel coronavirus outbreak shuttered businesses, throwing millions out of work. Job openings, a measure of labor demand, decreased 130,000 to 6.9 million, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS. Vacancies peaked at 7.5 million in January 2019. The job openings rate slipped to 4.3% in February from 4.4% in January. The decline in job openings was led by real estate and rental and leasing, and information industries. But there were 927,000 vacancies in the leisure and hospitality industry, with 783,000 of them at hotels, bars and restaurants. Retailers had 727,000 job openings in February. None of these vacancies likely exist now, with entire industries virtually closed. Hiring was little changed at 5.9 million in February, keeping the hiring rate at 3.9% for a third straight month. JOLTS data in the coming months will be closely watched for clues on the impact of the coronavirus shutdowns on hiring.

  • A separate report from the National Federation of Independent Business on Tuesday offered some early indications on hiring in the months ahead. According to the NFIB, the share of small businesses planning to increase hiring plummeted to 9% in March, the smallest since August 2016, from 21% in February. Overall, confidence among small business tumbled by the most on record to its lowest level since October 2016.

  • The JOLTS report showed the number of workers voluntarily quitting their jobs slipped to 3.5 million in February from 3.6 million in the prior month. The quits rate held at 2.3% for the sixth straight month. The quits rate is viewed by policymakers and economists as a measure of job market confidence. Layoffs rose to 1.8 million in February from 1.7 million in January. The layoffs rate increased to 1.2% from 1.1% in January. 

  • German industry output rose by 0.3% in February, beating expectations, but the figures reflect the period before the coronavirus significantly affected Europe's largest economy and the Economy Ministry warned of an impending collapse. Figures showed a 1.8% increase in the production of German consumer goods but a 0.3% decline in capital goods. A Reuters poll had put expectations for the overall figure at a 0.9% drop. Industry production will see a major collapse from March and for the second quarter on average.

  • Euro zone finance ministers hope to agree on Tuesday on half a trillion euros worth of economic aid to finance recovery from the coronavirus, a discussion that has sown divisions as the bloc struggles with the outbreak. If they do agree, the joint EU and national government responses could add up to the biggest fiscal support programme in the world, surpassing that of the United States, Reuters calculations showed. The ministers will agree on three economic safety nets - for workers, for businesses and for governments, the chairman of the ministers Mario Centeno said in a video statement. "It is arguably the most sizeable and ambitious package ever prepared by the Eurogroup. It builds on unprecedented efforts already take by governments and monetary authorities," he said.

  • Wall Street fell into late trading session. Dow Jones closed down 26 points (0.12%) at 22,653, the S&P 500 lower 4 points (0.16%) at 2,659 and the Nasdaq down 11 points (0.14%) at 7,902.


CURRENCIES

  • The USD lost ground as riskier currencies rebounded on tentative hopes that lockdowns may be slowing the spread of the coronavirus in some countries. DXY index down 0.93% at 99.82.

  • USDJPY strengthened, down to 108.70 from 109.30 as Japanese PM Shinzo Abe declared a state of emergency for parts of the country on Tuesday to counter the spread of coronavirus. 

  • GBP rose a day after British Prime Minister Boris Johnson was moved into intensive care due to worsening coronavirus symptoms. GBP gained 0.91% to 1.2340

  • EUR was up 0.98% at 1.0895, reaching an earlier peak at 1.0913.

  • AUD saw an impressive jump higher overnight, breaking briefly through 0.6200 to a 0.6207 high before falling back towards 0.6170.  

  • NZD also broke through 0.6000 resistance, making a visit towards 0.6014 but falling back towards 0.5980.

  • AUDNZD vaulted from 1.0280 levels upon towards 1.0350 highs (a near 1 month high).

  • AUDEUR almost broke through the 0.5700 barrier, gains capped at 0.5696 after falling lower towards 0.5665.


TREASURIES

  • U.S. Treasury yields climbed as the bond market mulled a looming supply deluge and Wall Street rose on hopes the coronovirus outbreak may slow down. 

  • The yield on the U.S. 10-year note was last up 6.4 basis points at 0.7422%.

  • The two-year Treasury yield was at 0.2799%, up 1.2 basis points.

  • A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes was at 46.4 basis points, about six basis points higher than at Monday's close. 

  • German government bond yields headed towards a two-week high with euro zone finance ministers due to meet later in the day to discuss a joint response to help member countries deal with the economic impact of the novel coronavirus. German government bond yields rose 7-10 basis points across the curve, with the long-dated 30-year bond up 10 bps at 0.06%, its highest since March 27. 

COMMODITIES

  • Gold prices fell over 1%, retreating from a near one-month high hit earlier in the session. Spot gold fell 1% to $1,644.51 an ounce after touching $1,671.40.

  • Dalian iron ore futures closed more than 2% lower, a two-week low, as overseas demand for the steelmaking ingredient took a hit due to the coronavirus pandemic. Spot prices of iron ore with 62% iron content for delivery to China rose by $1.5 to $83 a tonne on Friday.

  • Copper prices surged to their highest in nearly three weeks on some signs that the coronavirus pandemic may be slowing and on hopes that heavy bouts of stimulus will repair economic damage. Three-month LME copper had climbed 3.3% to $5,045 a tonne, its highest since March 18.

  • Oil edged lower on uncertainty over whether the world's biggest producers would agree to cut output in the face of a swelling crude oil glut as fuel demand has been hammered during the coronavirus pandemic. Brent crude fell 12 cents to $32.93 a barrel while West Texas Intermediate (WTI) crude lost 35 cents to $25.73 a barrel.


ECONOMIC DATA TODAY


  • Australia - Feb housing finance approvals (last 4.6%, forecast 2.5%). Market was tracking well ahead of the virus shutdown.

  • New Zealand - Global Daire trade auction (last -3.9%). Futures markets signal another decline in prices.

  • Japan - Feb machinery orders (last 2.9%, forecast -2.6%). Feb current account balance (trade flows to exhibit significant volatility).


AUD THOUGHTS AND TECHNICAL OUTLOOK

AUD was back up overnight, testing the upper end of the recent 0.5980/0.6215 range falling just short at 0.6207.   Optimism on the impacts from Covid-19 seems to have lifted risk sentiment higher with AUD making further gains against major currency pairs (JPY, EUR). Equities initially added to gains, global bond yields rallied sharply and some commodity futures markets (copper futures). Emerging market currencies have gained vs. USD while USD/CNH dropped below 7.0500. Those factors along with comments from the RBA drove helped sustain the positive risk sentiment.  Yesterday the RBA kept rates at record lows and pledged to keep three-year government bond yields at its 0.25% target as it predicted the coronavirus pandemic would trigger a massive economic decline. The board affirmed all the elements of that package and said it would not raise interest rates until it made progress in achieving its employment and inflation goals. The decision comes as economists predict the worst recession in Australia's history that would see the unemployment rate almost doubling to near 10%. Economic indicators on Tuesday offered a foretaste of the pain to come with March job vacancies posting their largest drop in more than a decade. "There is considerable uncertainty about the near-term outlook for the Australian economy," RBA Governor Philip Lowe said in a short post-meeting statement. "Much will depend on the success of the efforts to contain the virus and how long the social distancing measures need to remain in place," Lowe added. "A very large economic contraction is, however, expected to be recorded in the June quarter and the unemployment rate is expected to increase to its highest level for many years.” There’s not much in the way of Economic data releases to challenge currency direction, no major offshore data releases (Europe/U.S.) with todays Australian Feb housing finance approvals posing little to no concern. For the AUD, opens this morning at 0.6170 - the overnight rally at 0.6200 now threatening to break the March 31 high and 0.6237 (the 61.8% Fibonacci retracement of 0.6685-0.5510). Should bulls clear these levels, major resistance at 0.6310/25 is targeted. Rising RSIs & monthly bull hammer highlight techs remain bullish for now.



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