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