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Andro Matugas-Barnes
Aug 05 2019

TAT FX Brief: August'19

News & Insights
TAT FX Brief: August'19
<p>Since the last Reserve Bank of Australia rate decision on July 2, the Australian economy has not made any&nbsp;meaningful progress, nor really has it done much negative: economic data trends have been flat. The Citi Economic&nbsp;Surprise Index for Australia, a gauge of economic data momentum, gained from 1.8 on July 2 to 2.2 by Friday, August&nbsp;2. While there wasn&rsquo;t an Australian GDP report released during this timeframe, there was the Q2&rsquo;19 Australia inflation&nbsp;report that showed price pressures steadily increasing: 0.6% versus 0.5% expected, from 0% (q/q); and 1.6% versus&nbsp;1.5% expected, from 1.3% (y/y).</p> <p>If anything, recent developments from around the world, particularly concerning the US-China trade war, are likely to&nbsp;have a great influence on RBA policy in the near-term than any particular domestic development in Australia.</p> <p>Prior to the July Fed meeting, rates markets were not expecting any shot of the RBA following suit with a rate cut of its&nbsp;own at the August policy meeting. But with the imposition of the next round of Trump tariffs on China, the US-China&nbsp;trade war is escalating again, increasing the odds of a more significant slowdown in the global economy.</p> <p>Nevertheless, it remains unlikely that the August RBA meeting produces any change in policy, with overnight index&nbsp;swaps pricing in only a 9% chance of a 25-bps rate cut. But to be clear, these odds were 0% midweek; expectations&nbsp;are quickly rising that the RBA could act as early as October, where overnight index swaps are now pricing in a 61%&nbsp;chance of a rate cut; odds for a September rate cut stand at 44%. Another boost to the dovish language deployed at&nbsp;the August RBA meeting may be enough to keep bearish momentum going in the AUD-crosses.</p> <p>The failed breakout attempt by AUDUSD in mid-July above the descending trend line from the June 2018, December&nbsp;2018, and April 2019 highs has led to a precipitous spill over in recent weeks. Price action in AUDUSD has been&nbsp;extremely weak, with eleven straight days of losses materializing (or at least on pace to materialize) at the time this&nbsp;report was written on Friday, August 2.</p> <p>To this end, the path of least resistance remains to the downside. AUDUSD is comfortably below its daily 8-, 13-, and&nbsp;21-EMA envelope. Meanwhile, Slow Stochastics are nestled in oversold territory &ndash; not uncommon during extended&nbsp;periods of weakness. Daily MACD, on the other hand, continues to trend lower, deeper below its signal line in bearish&nbsp;territory. Traders may see AUDUSD&rsquo;s yearly low challenged, set on January 3 around the Yen flash-crash, at 0.6745&nbsp;over the coming sessions.</p> <p><u>AUDUSD</u>: Retail trader data shows 80.0% of traders are net-long with the ratio of traders long to short at 3.99 to 1. In&nbsp;fact, traders have remained net-long since July 19 when AUDUSD traded near 0.7057; price has moved 3.7% lower&nbsp;since then. The number of traders net-long is 9.4% lower than yesterday and 18.1% higher from last week, while the&nbsp;number of traders net-short is 17.4% lower than yesterday and 42.7% lower from last week.&nbsp;</p> <p>We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices&nbsp;may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current&nbsp;sentiment and recent changes gives us a stronger AUDUSD-bearish contrarian trading bias.</p> <p><u>Forecast&nbsp;</u><br /> The AUD/USD pair finished last week around the 0.6800 figure, recovering Friday from a multi-month low of 0.6762 to&nbsp;close the day flat. Trade tensions weighed on the Aussie, as China is Australia&rsquo;s biggest commercial partner while&nbsp;plummeting equities add to the downward case. In the background, the RBA cut rates to a record low of 1.0% while&nbsp;the US Federal Reserve made a &ldquo;preventive&rdquo; 25 bps cut. Indeed, escalating trade tensions fuelled speculation that the&nbsp;Fed could cut once again, yet Fed&rsquo;s cut&nbsp;only worsens the scenario for Australian policymakers, which will probably&nbsp;maintain the imbalances in favour of the USD.</p> <p>At the beginning of the week, Australia will have a busy calendar, which includes the AIG Performance of Services&nbsp;Index, the Commonwealth Bank Services and Composite PMI, all for July and the TD Securities Inflation reading for&nbsp;the same month.&nbsp;</p> <p>The AUD/USD pair is bearish, although a risk of an upward corrective movement continues to increase, as the pair&nbsp;declined for an eleventh consecutive day.</p> <p><strong>Today&rsquo;s Ranges</strong></p> <ul> <li>AUD/USD: 0.6748 - 0.6804</li> <li>AUD/EUR: 0.6067 - 0.6118</li> <li>AUD/GBP: 0.5545 - 0.5599</li> <li>AUD/CNY: 4.6973 - 4.7662</li> <li>AUD/INR: 47.041 &ndash; 47.428</li> </ul> <p><strong>Announcements to Watch</strong></p> <p>Monday, August 5, 2019</p> <p>All Day &nbsp;&nbsp;Holiday Canada - Civic Holiday &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> 4:30&nbsp;&nbsp; GBP &nbsp;&nbsp;Composite PMI (Jul) &nbsp;&nbsp;49.8 49.7<br /> 4:30&nbsp;&nbsp; GBP &nbsp;&nbsp;Services PMI (Jul) &nbsp;&nbsp;50.4 50.2<br /> 10:00&nbsp; USD &nbsp;&nbsp;ISM Non-Manufacturing PMI (Jul) &nbsp;&nbsp;55.5 55.1<br /> 18:45&nbsp;&nbsp;NZD &nbsp;&nbsp;Employment Change (QoQ) (Q2) &nbsp;&nbsp;0.30% -0.20%</p> <p>Tuesday, August 6, 2019</p> <p>0:30&nbsp;&nbsp; AUD &nbsp;&nbsp;RBA Interest Rate Decision (Aug) &nbsp;&nbsp;1.00% 1.00%<br /> 0:30&nbsp;&nbsp; AUD &nbsp;&nbsp;RBA Rate Statement&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> 7:00 &nbsp;&nbsp;BRL &nbsp;&nbsp;BCB Copom Meeting Minutes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> 10:00&nbsp; USD &nbsp;&nbsp;JOLTs Job Openings (Jun) &nbsp;&nbsp;7.268M 7.323M<br /> 22:00&nbsp; NZD &nbsp;&nbsp;RBNZ Interest Rate Decision &nbsp;&nbsp;1.25% 1.50%<br /> 22:00&nbsp; NZD &nbsp;&nbsp;RBNZ Rate Statement&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> 23:00&nbsp; NZD &nbsp;&nbsp;RBNZ Press Conference&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p>Wednesday, August 7, 2019</p> <p>5:00 &nbsp;&nbsp;INR &nbsp;&nbsp;Interest Rate Decision &nbsp;&nbsp;5.50% 5.75%<br /> 10:00&nbsp; CAD &nbsp;&nbsp;Ivey PMI (Jul) &nbsp;&nbsp;52.7 52.4<br /> 10:30&nbsp; USD &nbsp;&nbsp;Crude Oil Inventories &nbsp;&nbsp;-6.280M -8.496M</p> <p>Thursday, August 8, 2019</p> <p>19:50 &nbsp;&nbsp;JPY &nbsp;&nbsp;GDP (QoQ) (Q2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.10% 0.60%</p> <p>Friday, August 9, 2019</p> <p>All Day &nbsp;&nbsp;Holiday Singapore - National Day &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> All Day &nbsp;&nbsp;Holiday South Africa - Women&amp;#39;s Day &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> 4:30&nbsp; GBP &nbsp;&nbsp;GDP (MoM) &nbsp;&nbsp;0.10% 0.30%<br /> 4:30&nbsp; GBP &nbsp;&nbsp;GDP (QoQ) (Q2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.00% 0.50%<br /> 4:30&nbsp; GBP &nbsp;&nbsp;GDP (YoY) (Q2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.40% 1.80%<br /> 4:30&nbsp; GBP &nbsp;&nbsp;Manufacturing Production (MoM) (Jun) &nbsp;&nbsp;-0.10% 1.40%<br /> 4:30&nbsp; GBP &nbsp;&nbsp;Monthly GDP 3M/3M Change &nbsp;&nbsp;0.00% 0.30%<br /> 8:30&nbsp; USD &nbsp;&nbsp;PPI (MoM) (Jul) &nbsp;&nbsp;0.20% 0.10%<br /> 8:30&nbsp; CAD &nbsp;&nbsp;Employment Change (Jul) &nbsp;&nbsp;12.5K -2.2K</p> <p>Sunday, August 11, 2019</p> <p>All Day &nbsp;&nbsp;Holiday Singapore - Hari Raya Haji &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p>Monday, August 12, 2019</p> <p>All Day &nbsp;&nbsp;Holiday Singapore - Hari Raya Haji &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> All Day &nbsp;&nbsp;Holiday Japan - Mountain Day &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> All Day &nbsp;&nbsp;Holiday India - Eid al-Adha &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p>Tuesday, August 13, 2019</p> <p>4:30&nbsp; GBP &nbsp;&nbsp;Average Earnings Index +Bonus (Jun) &nbsp;&nbsp;3.10% 3.40%<br /> 4:30&nbsp; GBP &nbsp;&nbsp;Claimant Count Change (Jul) &nbsp;&nbsp;22.8K 38.0K<br /> 5:00&nbsp; EUR &nbsp;&nbsp;German ZEW Economic Sentiment (Aug) &nbsp;&nbsp;-22.3 -24.5<br /> 8:30&nbsp; USD &nbsp;&nbsp;Core CPI (MoM) (Jul) &nbsp;&nbsp;0.20% 0.30%<br /> 22:00&nbsp; CNY &nbsp;&nbsp;Industrial Production (YoY) (Jul) &nbsp;&nbsp;5.80% 6.30%</p> <p>Wednesday, August 14, 2019</p> <p>2:00&nbsp; EUR &nbsp;&nbsp;German GDP (QoQ) (Q2) &nbsp;&nbsp;0.40% 0.40%<br /> 4:30&nbsp; GBP &nbsp;&nbsp;CPI (YoY) (Jul) &nbsp;&nbsp;&nbsp;&nbsp;2.00%<br /> 21:30&nbsp; AUD &nbsp;&nbsp;Employment Change (Jul) &nbsp;&nbsp;&nbsp;&nbsp;0.5K</p> <p>Thursday, August 15, 2019</p> <p>All Day &nbsp;&nbsp;Holiday South Korea - Liberation Day &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> All Day &nbsp;&nbsp;Holiday Italy - Assumption Day &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> All Day &nbsp;&nbsp;Holiday India - Independence Day &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br /> 4:30&nbsp; GBP &nbsp;&nbsp;Retail Sales (MoM) (Jul) &nbsp;&nbsp;&nbsp;&nbsp;1.00%<br /> 8:30&nbsp; USD &nbsp;&nbsp;Core Retail Sales (MoM) (Jul) &nbsp;&nbsp;0.30% 0.40%<br /> 8:30&nbsp; USD &nbsp;&nbsp;Philadelphia Fed Manufacturing Index (Aug) &nbsp;&nbsp;5 21.8<br /> 8:30&nbsp; USD &nbsp;&nbsp;Retail Sales (MoM) (Jul) &nbsp;&nbsp;0.30% 0.40%</p> <p>Friday, August 16, 2019</p> <p>8:30&nbsp; USD &nbsp;&nbsp;Building Permits (Jul) &nbsp;&nbsp;1.300M 1.232M</p> <p>Monday, August 19, 2019</p> <p>5:00&nbsp; EUR &nbsp;&nbsp;CPI (YoY) (Jul) &nbsp;&nbsp;1.20% 1.10%<br /> 21:30&nbsp; AUD &nbsp;&nbsp;RBA Meeting Minutes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p>Wednesday, August 21, 2019</p> <p>8:30&nbsp; CAD &nbsp;&nbsp;Core CPI (MoM) (Jul) &nbsp;&nbsp;&nbsp;&nbsp;0.40%<br /> 10:00&nbsp; USD &nbsp;&nbsp;Existing Home Sales (Jul) &nbsp;&nbsp;&nbsp;&nbsp;5.27M</p> <p>Thursday, August 22, 2019</p> <p>3:30&nbsp; EUR &nbsp;&nbsp;German Manufacturing PMI (Aug) &nbsp;&nbsp;45.2 43.2</p> <p>Friday, August 23, 2019</p> <p>8:30&nbsp; CAD &nbsp;&nbsp;Core Retail Sales (MoM) (Jun) &nbsp;&nbsp;&nbsp;&nbsp;-0.30%<br /> 10:00&nbsp; USD &nbsp;&nbsp;New Home Sales (Jul) &nbsp;&nbsp;660K 646K</p> <p>Monday, August 26, 2019</p> <p>All Day &nbsp;&nbsp;Holiday United Kingdom - Summer Bank Holiday</p> <p><u><strong>Source</strong></u>:&nbsp;dailyFX,&nbsp;FXStreet,&nbsp;Investing.com</p>

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