OVERNIGHT DATA AND HEADLINES
• The USD gained, helped by better-than-expected data in the U.S. non-manufacturing sector, and oil prices retreated as investors awaited developments in the U.S.-Iranian stand-off in the Middle East. Gold prices inched higher after earlier backing off an almost seven-year high, while stocks in Europe and on Wall Street were little changed.
• The U.S. trade deficit fell to a more than three-year low in November as imports declined further, weighed down by the Trump administration's trade war with China, and exports rebounded, suggesting solid economic growth in the fourth quarter. The trade deficit decreased 8.2% to $43.1 billion in November, the smallest since October 2016. The trade gap narrowed 0.7% through November and is on track to record its first annual decline since 2013. Though the shrinking trade bill should be a boost to gross domestic product in the fourth quarter, falling consumer and capital goods imports also suggest a cooling in domestic demand. Economists polled by Reuters had forecast the trade shortfall tightening to $43.8 billion in November.
• U.S. Dec services sector PMI 55.0 vs consensus 54.5, highest since Aug - Reuters
• New orders for U.S.-made goods fell in November, pulled down by steep declines in demand for machinery and transportation equipment, pointing to sustained weakness in manufacturing despite an easing in trade tensions between Washington and Beijing. Factory goods orders dropped 0.7%. Data for October was revised down to show orders rising 0.2% instead of increasing 0.3% as previously reported.
• Euro zone inflation jumped as expected last month, offering some temporary relief for ECB policymakers before price growth is expected to dip again. Inflation in the 19 countries sharing the euro currency rose to 1.3% as expected in December from 1.0% a month earlier as energy prices rebounded and the cost of food products rose. With inflation running well below its target of nearly 2%, the ECB has been providing unprecedented stimulus for years and weak economic growth has increased the risk that even more central bank help will be needed before price pressures build.
• U.S. stocks fell further away from record highs. Dow Jones down 107 points (0.37%) at 28,596, S&P 500 down 7 points (0.22%) at 3,239 and Nasdaq up 13 points (0.14% at 9,084.56.
• At least 56 people were killed in a stampede as tens of thousands of mourners packed streets for the funeral of a slain Iranian military commander in his hometown on Tuesday, forcing his burial to be delayed by several hours. General Qassem Soleimani's burial went ahead in the early evening in the south eastern city of Kerman, four days after his killing in a U.S. drone strike in Iraq that plunged the region into a new crisis and raised fears of a wider Middle East war.
• The U.S. DXY index gained 0.33% to 97.08
• EUR fell 0.43% from 1.1190 down towards 1.1132.
• GBP reached a 1.3211 high before falling down towards 1.3093.
• USDJPY weakened from a three-month high, climbing from 108.32 up towards 108.62.
• The Swiss franc dropped against the USD – CHF weakened 0.30% to 0.9717
• AUD was the biggest loser among the G10 currencies, dropping over 1.0% from a 0.6938 high down towards 0.6856.
• NZD fell over 0.50% from 0.6679 highs down to 0.6623.
• AUDNZD continued lower down towards 1.0336 lows.
• AUDEUR found support from 0.6150 lows, dropping from a 0.6200 high.
• The U.S. yield curve was steeper in the wake of good economic data. The 10-year yield was last up 1.4 basis points at 1.827%, with the 2-year yield roughly flat at 1.547%.
• The U.S. yield curve was last at 27.7 basis points, up from its last close at 26.2.
• Euro zone government bond yields edged up from around three-week lows - Germany's 10-year bond improving to -0.275% from -0.292%.
• Gold surged to a near seven-year high - Spot gold was up 1.1% at $1,568.19 per ounce, after rising to $1,582.59 earlier in the session, its highest since April 2013.
• China's iron ore futures closed up, shored up by expectations of higher demand after top steelmaking city Tangshan lifted its second-level smog alert. Prices for spot cargoes of iron ore with 62% iron content for delivery to China rose for the third consecutive session to $95 a tonne on Monday.
• Copper prices clawed higher as U.S.-Iran tensions eased and investors expected China to extend its stimulus policies. Three-month LME copper rose 0.2% to $6,149 a tonne, extending a 0.2% gain.
• Oil prices fell about 1%, surrendering some of the gains of recent days as investors reconsidered the likelihood of immediate supply disruptions in the Middle East. Brent crude was down 71 cents, or 1%, at $68.20 a barrel. U.S. West Texas Intermediate (WTI) crude fell 67 cents, or 1.1%, to $62.60 a barrel.
ECONOMIC DATA TODAY
• Australian Economic data today : Nov building approvals (last –8.1%, market f/cast +2.0%). Volatile around a weak trend.
• Europe - December economic confidence (last 101.3). Slightly sub average
• US - December ADP employment change (last 67k). Has been in conflict with payrolls in recent months.
AUD was set for a fifth straight day of decline, extending its fall from the Dec 31 high (0.7031), as markets wagered the economic impact of deadly bushfires ravaging the country could force a rate cut as soon as February. Adding to the overnight selling pressure, heightened Geopolitical risk sentiment, stronger USD, sinking Australian interest rates, a more possible RBA cut in early Feb and upbeat US trade & ISM non-manufacturing data. The Australian bush fires appear to be impacting Australia's jobs market. ANZ's job ads data slid 6.7% in December and hit the lowest level since April 2016. The weakening employment outlook has driven Australian interest rates lower while also increasing expectations for an RBA cut on Feb. 4. U.S. interest rates are trading firmer after the positive overnight data and have helped underpin the USD.
Domestic data out today includes Nov building approvals, trade balance on Thursday and Australian retail sales for November on Friday.
AUD price action has technicals highlighting further downside risks with overnight movements piercing key technical levels. Bearish momentum remains and is likely to persist for now.
The rally off October's low (0.6668) is still intact but a break below November's low (0.6751) implies it will be finished.
AUD shorts show no mercy to longs – AUD sinks in Europe's morning, bears keep pressure on in NY
AUD breaks below the 200-DMA (0.6896) and pierces the 55-DMA (0.6866) with little bounce seen.
AUD price action has technicals highlighting the downside risks. Daily and monthly RSIs imply bearish momentum remains and is likely to persist for now.