The Weekly Wrap – The EUR and Yen Come Out on Top as the Equity Markets Hit Corrective Territory

The Stats

It was a relatively busy week on the economic calendar, in the week ending 28th February.

A total of 56 stats were monitored, following the 72 stats in the week prior.

Of the 56 stats,  26 came in ahead forecasts, with 21 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 25 of the stats reflected an upward trend from previous figures. Of the remaining 31, 25 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bearish week, as the markets reversed bets that the U.S economy would be unscathed from the spread of the coronavirus.

Not only did economic data continue to disappoint, but the markets also raised the probability of multiple rate cuts by the FED.

When gold takes a tumble as investors look for liquidity to meet margin calls, it’s never a good thing…

The Dollar Spot Index fell by 1.21% to end the week at 98.132.

Out of the U.S

It was a quiet first half of the week, with economic data limited to February consumer confidence figures.

A slight uptick in consumer confidence had a muted impact on the dollar on Tuesday.

Market risk aversion and updates from the U.S on the coronavirus pinned the Dollar back early in the week.

In the 2nd half of the week, durable goods orders on Thursday also failed to impress ahead of a busy Friday.

While core durable goods orders rose by 0.90% in January, durable goods orders fell by 0.2%, sending mixed signals to the market.

At the end of the week, the annual rate of inflation continued to fall short of the FED’s 2% objective.

Personal spending rose by just 0.2% in January, which was softer than a 0.4% rise in December.

Chicago PMI numbers were somewhat better than anticipated, however, with the PMI rising from 42.9 to 49.0.

The February numbers suggested that next week’s ISM numbers may not be as dire as the Markit PMI numbers.

It wasn’t enough to support the U.S equity markets or the Dollar, however.

Housing sector numbers and 2nd estimate GDP numbers for the 4th quarter had a muted impact in the week.

In the equity markets, the Dow slumped by 12.36%, with the S&P500 and NASDAQ tumbling by 11.49% and by 10.54% respectively.

Out of the UK

It was a particularly quiet week on the economic calendar.

There were no material stats to provide the Pound with direction.

The lack of stats left the Pound in the hands of Brexit chatter as the EU and Britain prepare to return to the negotiating table.

A visit to $1.30 levels early in the week was brief, with the British Prime Minister spooking the markets once more.

Johnson spoke on Thursday, stating that Britain would walk away from negotiations should there be a lack of progress by the end of June.

With so much to iron out and the 2-sides worlds apart, hopes of having a framework in place by June are slim…

In the week, the Pound fell by 1.09% to $1.2823, with the FTSE100 ending the week down by 11.12%.

Out of the Eurozone

It was a relatively quiet start to the week economic data front.

Germany was in focus, with February IFO Business Climate Index figures and 2nd estimate GDP numbers in focus.

On the positive side for the EUR was a slight pickup in the Business Climate Index. This came off the back of a rise in optimism, as the current assessment index eased back.

Ultimately, however, March numbers will give a better indication of whether the coronavirus has affected business sentiment.

With GDP numbers in line with 1st estimates, the focus then shifted to a busy Friday.

Key stats included French consumer spending and German unemployment numbers.

While Germany’s unemployment rate held steady, French consumer spending took a hit in January. The slide came ahead of the coronavirus news, which suggests that a further pullback in spending could be on the cards.

The stats failed to influence, however, as the markets punished the Dollar through much of the week.

Prelim inflation figures out of Spain and France, French GDP numbers and finalized consumer confidence figures out of the Eurozone also failed to move the dial…

On the monetary policy front, ECB President Lagarde spoke late in the week. She was of the view that the virus had yet to impact inflation to the point where the ECB needs to step in…

That is in stark contrast to the outlook towards FED monetary policy…

For the week, the EUR rose by 1.65% to $1.1026.

For the European major indexes, it was a particularly bearish week. The DAX30 tumbled by 12.44%, with the CAC40 and the EuroStoxx600 ending the week down by 11.94% and 12.25% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 28th February, the Aussie Dollar slid by 1.69% to $0.6515, with the Kiwi Dollar down by 1.62% to $0.6246.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter construction work done and private new CAPEX figures on Wednesday and Thursday.

Both sets of figures disappointed, though a 2.8% slide in new CAPEX in the 4th quarter was more alarming.

RBA monetary policy has not only been in favor of consumer spending but also business investment. The slide suggests a lack of confidence and raised the prospects of a near-term rate cut.

On Friday, the private sector credit figure also failed to impress, with total credit rising by just 0.3% month-on-month.

With the numbers skewed to the negative, risk aversion added to the downside in the week.

Negative sentiment towards the economic outlook led to a slide in commodities and commodity currencies.

For the markets, uncertainly over when the spread of the coronavirus will abate also influenced.

For the Kiwi Dollar

It was a relatively quiet start to the week on the economic colander.

4th quarter retail sales figures failed to impress at the start of the week, with sales rising by 0.7%. In the 3rd quarter, retail sales had risen by 1.7%.

Later in the week, trade data and business confidence figures delivered mixed results that added pressure on the Kiwi.

While trade exports to China rose further, January’s trade was not impacted by China’s shut down.

Business confidence figures, however, suggested some doom and gloom ahead.

With exports to China accounting for 27% of total New Zealand exports in January, it could be quite dire reading next month…

For the Loonie

It was a busy week on the economic calendar. Key stats included wholesale sales figures on Monday and RMPI and GDP numbers on Friday.

A rise in wholesale sales in December failed to provide support at the start of the week, as crude oil prices got hammered.

Market fears of a marked slowdown in the global economy, stemming from the spread of the coronavirus, weighed.

At the end of the week, with the Loonie already under the cosh, GDP numbers also failed to support.

While the economy fared better in December, there was a marked slowdown in the 4th quarter. When considering the economic disruption anticipated in the 1st quarter and beyond, it doesn’t look good.

RMPI numbers also failed to impress, with the RMPI falling by 2.2% in January, reversing most of a 2.7% rise in December.

With the BoC in action next week, the chances of a rate cut certainly jumped in the week…

The Loonie slid by 1.38% to end the week at C$1.3407 against the Greenback.

For the Japanese Yen

It was a relatively quiet week on the data front.

The markets had to wait until Friday for key stats that had little to no influence on the Japanese Yen.

For the Government, the impact of the coronavirus on consumer spending is a blow following last year’s sales tax hike. That suggests that government support is likely to come.

In the meantime, however, retail sales fell by 0.4% in January, following a 2.6% slide in December.

The annual rate of core inflation also eased, with the Ku-area seeing core inflation easing from 0.7% to 0.5% in February.

With the jobs/applications ratio falling from 1.57 to 1.49, the only bright data set was industrial production.

A 0.8% rise in production in January was of little consolation, however, when considering the anticipated drop in demand.

Risk aversion ultimately drove demand for the Yen in the week, with concerns over the U.S economy restoring the Yen’s position as the “go-to” currency.

The Japanese Yen surged by 3.33% to end the week at ¥107.89 against the U.S Dollar. Risk aversion in the week weighed heavily on the Nikkei, which slumped by 9.59%, leaving the index down by 8.89% for February.

Out of China

There were no material stats to provide direction ahead of private sector PMIs on the weekend.

A lack of stats left updates on the coronavirus to provide direction that was ultimately positive for the Yuan.

In contrast, the sell-off across the global stock markets weighed on the CSI300 and Hang Seng, though they did fare better than the pack.

The CSI300 fell by 5.05%, with the Hang Seng falling by 4.32% in the week.

In the week ending 28th February, the Yuan rose by 0.50% to CNY6.9920 against the Greenback.

AUD/USD Weekly Price Forecast – Australian Dollar Gets Crushed for The Week

The Australian dollar initially gapped lower to show signs of weakness, turned around to fill that gap, and then broke down to reach towards the 0.65 level during the Friday session. That of course is a large, round, psychologically significant figure, and therefore it’s likely that the market will react there. We are starting to see a slight bounce during the Friday session, but if we were to break down through that area it opens up the door down to the 0.63 handle which is the bottom of the financial crisis area.

AUD/USD Video 02.03.20

At this point, the market looks as if it could bounce, but bouncing from here could be a nice selling opportunity at signs of exhaustion, and the 0.67 level above will probably offer a bit of a “ceiling” in the market. If we were to break above that level it would change a lot of things but right now, I just don’t see that happening. At this point, the market is likely to bounce a bit, but I look at that bounce as an opportunity to pick up the US dollar “on the cheap.” Ultimately, if we were to break down below the 0.63 level underneath, that would be a disaster for the Aussie. The US dollar should continue to attract quite a bit of inflow due to safety concerns, and of course the fact that the Australians are so highly levered to China itself. With this, keep in mind that we are in a downtrend for a multitude of reasons to begin with, so buying is extraordinarily dangerous.

AUD/USD Price Forecast – Australian Dollar Gets Hammered

The Australian dollar has been hammered during the trading session on Friday, but at this point it’s likely that the market will have to bounce a bit due to the fact that it is oversold. Granted, the Australian dollar is highly sensitive to the Chinese economy and what’s going on there, which of course is getting crushed by the coronavirus situation. A lack of demand for copper and other raw materials out of Australia will probably continue to suffer, so at this point I think it’s likely that the market will sell the Australian dollar is a bit of a proxy. Furthermore, the US dollar is picking up quite a bit of momentum due to the fact that the markets are completely freaking out around the world, as the coronavirus has seemingly accelerated.

AUD/USD Video 02.03.20

The market participants will more than likely sell into any rally that we get at this point, so looking for signs of exhaustion will be the way to go. I believe at this point, it’s a matter of time before you get some type of opportunity to sell this pair. Quite frankly, if we do break down below the lows of the Friday session, it is of course a selling signal, but I much prefer selling rallies Sibley because we are a bit overextended. I still believe that this pair is probably going to go looking towards the 0.63 handle, which was the bottom of the financial crisis back over a decade ago. To the upside, I believe that the 0.66 level could offer more selling, and most certainly the 0.67 level will. All things being equal it’s likely that the market could see a bit of a bounce late in the Friday session just due to short covering.

The Dollar Takes a Hit as Economic Data Continues to Play 2nd Fiddle to the Coronavirus

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Japanese Yen and Aussie Dollar were in action.

For the Japanese Yen

Economic data included, February inflation figures and January’s job to applications ratio, industrial production, and retail sales figures.

According to consumer price figures released by the Ministry of Internal Affairs and Communication. The Ku-area of Tokyo saw the annual core rate of inflation ease from 0.7% to 0.5%, falling beyond a forecasted 0.6%.

  • Prices for Education slid by 6%, with prices for fuel, light and water charges falling by 2.8%.
  • There were solid increases in prices for clothes & footwear (+2.4%) and furniture and household utensils (+2.0%), however.
  • Prices for medical care (+1.3%), transportation and communication (+1.0%), culture and recreation (+0.9%) also provided support.
  • Prices for housing rose by just 0.5%, however.

With inflationary pressures easing in February, jobs available also eased, as the jobs/applications ratio fell from 1.57 to 1.49. The ratio last stood at sub-1.50 levels back in May 2017, when the ratio had also stood at 1.49.

The Japanese Yen moved from ¥109.638 to ¥109.616 upon release of the figures that preceded the industrial production and retail sales figures.

Retail Sales and Industrial Production

According to the Ministry of Economy, Trade, and Industry, retail sales fell by 0.4% in January, year-on-year, following a 2.6% slide in December. Economists had forecasted a 1.1% decline.

Industrial production increased by 0.8% in January, according to prelim figures, following a 1.2% rise in December. Economists had forecast a 0.2% rise.

According to the Ministry of Economy, Trade, and Industry,

Industries that mainly contributed to the increase were:

  • Motor vehicles, transport equipment (excl. motor vehicles), and other manufacturing.

Industries that mainly contributed to a decrease were

  • Production machinery, general-purpose and business orientated machinery, and electrical machinery, and information, and communication electronics equipment.

The Japanese Yen moved from ¥109.652 to ¥109.571 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.06% to ¥109.52 against the U.S Dollar.

For the Aussie Dollar

According to figures released by RBA, total credit increased by 0.3%, month-on-month, in January. In December, credit had risen by 0.2%.

  • Business credit jumped by 0.5%, following a 0.2% rise in December, supporting the marginal uptick.
  • Personal credit fell at a sharper pace, however. Following a 0.4% decline in December, personal credit fell by 0.6% in January.
  • Housing credit rose by 0.3%, following a 0.3% increase in December.

The Aussie Dollar moved from $0.65811 to $0.65832 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.20% to $0.6582.

Elsewhere

At the time of writing, the Kiwi Dollar was up by 0.03% to $0.6309.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include German unemployment and French consumer spending figures.

Barring material deviation from 1st estimate numbers, 2nd estimate GDP figures out of France will likely have a muted impact on the EUR.

Later in the European session, prelim Italian and German inflation figures for February will also likely have a muted impact on the EUR.

Outside of the numbers expect news updates on the coronavirus to also provide direction. We’ve seen the Dollar take a hit as the coronavirus spreads across the U.S, leaving the U.S economy at risk of a slowdown.

At the time of writing, the EUR was down by 0.03% at $1.0998.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

We can expect the Pound to be under pressure as the markets shift attention to negotiations that commence next week.

At the time of writing, the Pound was up by 0.04% to $1.2892.

Across the Pond

It’s a busy day ahead on the U.S economic calendar.

Key stats include Chicago PMI, personal spending, inflation and trade data. With the markets now beginning to expect monetary policy easing, today’s stats will have a material influence.

We expect finalized consumer sentiment figures for February to have a muted impact on the day.

Outside of the numbers, news updates on the coronavirus will also influence.

The Dollar Spot Index slid by 0.49% to 98.508 on Thursday.

For the Loonie

It’s a busy day ahead on the economic calendar, with key stats including GDP and RMPI numbers.

With the Bank of Canada in action next week, any soft numbers and expect the markets to price in a rate cut.

The BoC had previously talked of a willingness to make a move should economic indicators support a cut. With the coronavirus spreading globally and weighing on global trade and consumption, expect the numbers to do the talking.

The Loonie was down by 0.02% at C$1.3393 against the U.S Dollar, at the time of writing.

AUD/USD Price Forecast – Australian Dollar Gets Relief Rally as Dollar Fades

The Australian dollar has rallied significantly during the trading session on Thursday from extremely low levels. That being said though, there are plenty of areas where the Australian dollar is going to run into trouble above, so quite frankly this is not the time to be buying. IEC the 0.66 level as an area that will be little bit resistive, but after that, it’s very likely that the market could go towards the 0.67 handle. That is an area that is crucial from a longer-term standpoint, and therefore I would expect a lot of selling in that area.

AUD/USD Video 28.02.20

The Australian dollar of course is very sensitive to what goes on in Asia, and then by extension China. As long as there is a lot of disruption in China, it will have a major influence on what happens with the Australian economy, as they supply so much in the way of commodities and raw materials for the Chinese economic engine, not only from the export side but also from the construction side. A perfect proxy for the Australian dollar most of the time is going to be the copper market, which have been taken out to the woodshed. Because of this, the Australian dollar will continue to suffer and for myself, I am not interested in buying the Aussie dollar until it closes above the 0.6775 handle on at least a daily chart, if not a weekly chart. The Australian dollar still has further to go to the downside given everything that’s going on in Asia.

AUD/USD Forex Technical Analysis – Trader Reaction to Weekly Mid-Point at .6583 Sets Late Session Tone

The Australian Dollar is edging higher on Thursday in a move that could be related to profit-taking or end-of-the-month position-squaring. Nothing changed in the fundamentals overnight to warrant a rally. In fact, the news was primarily on the bearish side.

Australia’s 10-year bond yield fell to a new record low of 0.845 percent after Australia’s Prime Minister Scott Morrison said risk of global pandemic is very much upon us, while urging the need to take action.

Additionally, Australia private capital expenditure dropped -2.8% in Q4, much worse than expectation of 0.5% increase. In seasonally adjusted terms, building and structures dropped -5.9%. Mining dropped -2.7%. Equipment, plant and machinery rose 0.8%. Manufacturing dropped -10.1% and other selected industries fell -1.9%.

At 08:53 GMT, the AUD/USD is trading .6572, up 0.0027 or +0.42%.

Daily Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6543 will signal a resumption of the downtrend. The main trend will change to up on a move through .6750, which is highly unlikely at this time.

Daily AUD/USD

Daily Forecast

The AUD/USD is picking up a little strength in the European session. Most of the short-covering is likely tied to the small rebound from session lows in the U.S. stock index futures markets.

Despite the early session strength, the Aussie is still trading lower for the week and slightly below its weekly mid-point at .6583 that could prove to be resistance later today.

Upside momentum could increase over .6583, but sellers are likely to be waiting at a pair of downtrending Gann angles at .6614 and .6622. Since the main trend is down, sellers are likely to re-emerge on a test of this area.

On the downside, since nothing took place on the fundamental side that would suggest the AUD/USD has found support, we’re expecting lower prices over the near-term. Weak Chinese economic growth is likely be a drag on the Australian economy so we expect the Aussie to continue to move toward its March 3, 2009 main bottom at .6285.

However, the announcement of government stimulus measures could trigger a sharp short-covering rally at any time.

AUD/USD and NZD/USD Fundamental Daily Forecast – Weighed Down by Lower Chinese Growth Expectations

The Australian and New Zealand Dollars are trading higher on Thursday on light-profit-taking and end-of-the-month position squaring. Mixed, but mostly lower trading in Asia Pacific stock markets could also be contributing to the slight rebound from Wednesday’s steep losses.

Nonetheless, the rapid global spread of the coronavirus kept investors on edge as they continued to shed risky commodity and trade-based currencies while seeking shelter in safe-haven government bonds.

At 08:09 GMT, the AUD/USD is trading .6562, up 0.0017 or +0.26% and the NZD/USD is at .6305, up 0.0016 or +0.26%.

Aussie, Kiwi Affected by Expectations of Lower Chinese Growth

The virus has driven an enormous flight of assets out of Asia as investors try to isolate themselves from both the outbreak itself and the cost of what has now been more than a month of paralysis in the world’s second-biggest economy, Reuters said.

New Zealand’s government said on Thursday it might need to pump money into its economy, where China accounts for about a quarter of exports, should the fallout cause a global recession.

Capital Economics now expects Chinese growth to contract this year.

“The economic risks from extended disruption are non-linear,” Capital’s chief Asia economist and its senior China economist, Mark Williams and Julian Evans-Pritchard, said in a note.

“The longer it continues, the more likely it is that some firms won’t be able to pay workers, and will have to either cut pay, lay people off or shut down altogether.”

New Zealand Finance Minister Warns of ‘Short, Sharp’ Economic Hit

In a speech to the Auckland Chamber of Commerce on Thursday, New Zealand Finance Minister Grant Robertson warned that New Zealand will experience a “short, sharp” economic hit.

“We meet today in the shadow of one of the biggest uncertainties that the global economy has seen in recent times,” he told those gathered.

He warned that the virus outbreak would have a “serious impact on the New Zealand economy in the short term”.

He stressed this point numerous times during his speech, making it clear that the economy would “rebound”, the New Zealand Herald reported.

Australian 10-Year Bond Yields Hit Record Low, CapEx Drops

In other news, Australia’s 10-year bond yield fell to a new record low of 0.845 percent after Australia’s Prime Minister Scott Morrison said risk of global pandemic is very much upon us, while urging the need to take action.

Additionally, Australia private capital expenditure dropped -2.8% in Q4, much worse than expectation of 0.5% increase. In seasonally adjusted terms, building and structures dropped -5.9%. Mining dropped -2.7%. Equipment, plant and machinery rose 0.8%. Manufacturing dropped -10.1% and other selected industries fell -1.9%.

The Mid-Week Wrap – Asian Markets and Stocks

The last week of the month usually is pretty quiet. Is it also the case this week?

For the U.S Dollar

It was a quiet start to the week on the economic data front. The markets needed until Tuesday for consumer confidence figures that failed to impress.

We saw the Dollar under pressure at the start of the week, with last week’s PMI numbers raising the chances of a FED rate hike in the 1st half of the year.

The shift in sentiment saw demand for the Dollar ease early in the week. Following FED Chair Powell’s testimony, the markets had anticipated a resilient U.S economy. Recent economic indicators suggested otherwise, with the U.S private sector contracting in February.

Throw in the rising number of cases of the coronavirus and the CDC’s outlook and the U.S economy also faces headwinds.

Through the remainder of the week, inflation and personal spending figures on Friday will garner plenty of attention. Personal spending figures will be of particular interest as it will indicate any consumer concerns over the virus.

Ahead of the numbers, 2nd estimate GDP numbers for the 4th quarter are due out along with durable goods orders on Thursday.

Expect the durable goods orders to have a greater impact, as the markets look for coronavirus impact on demand.

For the EUR

It was also a relatively quiet start to the week. Germany’s business confidence 2nd estimate GDP numbers were in focus.

While 2nd estimate GDP figures were in line with 1st estimate, there was an improvement in business sentiment.

February’s IFO survey came ahead of the spread of the coronavirus through Europe, however, limiting any upside for the EUR.

Over the remainder of the week, the focus will shift to consumer spending and 4th quarter GDP numbers out of France. There are also unemployment numbers out of Germany to also consider.

For now, we’ve seen the EUR find support as the sentiment shifts towards the U.S economy. Ultimately, however, the Eurozone economy remains more at risk to a marked slowdown that that of the U.S, which suggests the upside to be limited.

A more material spread of the virus across the U.S, however, would alter that outlook.

For the Pound

It’s a particularly quiet week on the economic data front and there have been no material stats to provide support.

We saw the Pound bounce back to $1.30 levels on Tuesday following the EU member states desire to form an ambitious trade agreement with Britain.

That comes with strings attached, however, which Britain is unwilling to agree to.

On Thursday, the British government is due to announce its starting terms, which will give an idea of just how far apart the 2-sides are.

Expect reaction to influence the Pound over the remainder of the week.

Stocks go down due to the virus in an environment of no macroeconomic data releases. In the meantime, how have the commodity currencies reacted to the recent developments in the markets?

We saw the commodity currencies fair better in the early part of the week, in spite of the risk aversion.

This was largely due to the shift in sentiment towards the U.S economy and monetary policy

That being said, it’s still been a bearish week for the commodity currencies.

For the Aussie Dollar, new CAPEX figures for the 4th quarter failed to impress this morning.

With business investment on the slide, any slide in consumer spending would add further pressure on the RBA to make a move.

In the last meeting, the RBA had raised some concerns over the likely impact of the coronavirus on the global economy. Since then, we can expect that concern to have spiked as the virus reaches new countries.

It certainly looks set for a particularly dovish RBA next week, which should limit any upside for the Aussie Dollar.

Things are not much better for the Kiwi Dollar.

Retail sales rose by just 0.7% in the 4th quarter, following a 1.7% rise in the 3rd, with the numbers coming ahead of key stats on Thursday.

While January trade data delivered support, with exports to China on the rise once more in January, it was business confidence that weighed.

The trade figures failed to capture the effects of the extended Chinese New Year and quarantines across the country. February’s figures are expected to be quite dire, however, if business confidence numbers are anything to go by.

That leaves the Kiwi under immense pressure, with economic disruption expected to continue beyond the 1st quarter.

A slight decline in all of the commodity currency charts. Meanwhile, how have the major Asian countries fared during this period? I assume they have been hit the most by the coronavirus.

For the Japanese Yen

We saw the Japanese Yen find renewed interest this week, at the expense of the Greenback. With risk aversion continuing to plague the markets, the rise in the number of cases in the U.S and weak data provided the upside.

The markets had previously moved away from the Yen over concerns that the region would be harder hit by the virus.

This is likely to be the case, however, which should limit any return to ¥107 – 108 levels against the Greenback.

On the economic data front, retail sales and industrial production figures due out on Friday will unlikely reflect the effects of the virus.

Dire numbers, however, would suggest that the BoJ will need to make a move of some sort…

For the rest of the Asian Majors

Unsurprisingly, the rest of the Asian majors have struggled in the week.

We’ve seen the Taiwanese Dollar, Singapore Dollar, Korean Won, and Chinese Yuan struggle as disruption to trade is expected to hurt the respective economies.

Monetary and fiscal policy support has been delivered by a number of central banks in the region.

Uncertainty over the time frame involved, however, and how bad it could get continues to pressure the majors. This will likely continue near-term or at least until the pace of the global spread abates.

Will U.S Durable Goods Orders Give the Markets More Angst as the Number of U.S Cases Rise?

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Kiwi Dollar and Aussie Dollar were in action.

For the Kiwi Dollar

New Zealand’s trade deficit narrowed from NZ$4,460m to NZ$3,870 year-on-year in January. Month-on-month, the trade balance fell from an NZ$384m surplus to an NZ$340m deficit.

According to NZ Stats,

  • Total exports rose by NZ$382m (8.8%) from January 2019 to hit NZ$4.7bn.
    • Exports to China jumped by NZ$302m (31%) to NZ$1.3bn in January, compared with January 2019.
    • A jump in dairy, meat, and log exports led the way.
    • The rise in exports to China meant that China accounted for 27% of total exports, all of which came before the extended CNY holidays and quarantines across the country.
  • Total imports fell by NZ$212m (4.0%) to NZ$5.1bn in January 2020.
    • A slide in the import of vehicles, parts, and accessories (NZ$116m) weighed on imports. Motor car imports were the main driver.
    • Imports from China stood at NZ$1.1bn in January 2020, which accounted for 22% of total monthly imports. On an annual basis, 20% of total imports were from China.

The New Zealand Dollar moved from $0.62898 to $0.62900 upon release of the figures that preceded January business confidence figures.

In January, the ANZ Business Confidence Index fell from -13.2 to -19.4. Economists had forecast a rise to -7.9.

According to the latest ANZ Report,

  • A net 12% of firms expect stronger activity ahead for their own business, falling by 5.
  • Agriculture sector own activity tumbled from +16 to -30, with manufacturing own activity down from +24 to +4.
  • Expected profitability, investment and employment intentions were all in decline.
  • The downward trend was attributed to the spread of the coronavirus. ANZ noted that survey responses received after the COVID-19 outbreak hit the headlines were more negative. These accounted for one-third of the total respondents.
  • On the bright side, the construction sector saw a rosier outlook, with retail sector pricing intentions jumping to the highest level since 2008.

The Kiwi Dollar moved from $0.62866 to $0.62900 upon release of the numbers. At the time of writing, the Kiwi Dollar down by 0.05% to $0.6290.

For the Aussie Dollar

Private new capital expenditure slid by 2.8% in the 4th quarter, following on from a revised 0.4% decline in the 3rd quarter. Economists had forecast a 0.4% rise.

According to the ABS,

  • Building and structures saw a 5.9% slide, while new CAPEX expenditure on equipment, plant, and machinery rose by 0.8%.
  • In the 3rd quarter, investments in building and structures had risen by 2.5%, while expenditure on equipment, plant, and machinery had fallen by 3.6%.

The Aussie Dollar moved from $0.65511 to $0.65535 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.18% to $0.6556.

While the Aussie Dollar was up in the early hours, the slump in new CAPEX expenditure gives the RBA further reason to cut rates. The low-interest-rate environment was not only meant to support consumers but also fuel business spending.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.16% to ¥110.25 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include prelim February inflation figures out of Spain and finalized Eurozone consumer confidence figures.

Barring a material pullback in inflation, however, we would expect the numbers to have a muted impact on the EUR.

Expect any revision to Eurozone consumer confidence figures to influence, however, as the markets search for sentiment towards the spread of the coronavirus.

Outside of the numbers, expect market risk sentiment to continue to provide direction. For the EUR, early support kicked in as the markets reacted to news of a rise in new coronavirus cases in the U.S. The upward swing has come as the markets reverse bets on the U.S economy being unscathed from the spread of the virus.

At the time of writing, the EUR was up by 0.26% at $1.0909.

For the Pound

It’s also a quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

While there are no stats to consider, the British Government is due to release its terms for trade negotiations with the EU.

It will all come down to how far apart the 2-sides are from the get-go and how the EU responds and Boris Johnson and David Foster react in return.

Expectations are for a difficult road ahead, which should peg the Pound back at $1.29 levels and bring $1.28 levels back into play.

On the monetary policy front, BoE MPC member Cunliffe is scheduled to speak in the early afternoon. Following Cunliffe’s concerns over the negative effects of prolonged monetary policy easing, expect any dovish chatter to weigh on the Pound.

We’ve yet to hear of central banks wanting to step in as the coronavirus continues to spread. This may well change in the coming weeks…

At the time of writing, the Pound was up by 0.12% to $1.2921.

Across the Pond

It’s a relatively busy day ahead on the U.S economic calendar. January durable goods orders and 2nd estimate GDP numbers for the 4th quarter are due out.

Barring deviation from 1st estimate numbers, expect the core durable goods and durable goods orders to have the greatest impact.

Following last week’s particularly disappointing PMI numbers, any slide in orders will pressure the Greenback further.

Initial weekly jobless claims and pending home sales figures for January are also due out. We will also expect the numbers to have a muted impact on the Dollar, however.

Outside of the numbers, market risk sentiment will continue to influence.

At the time of writing, the Dollar Spot Index was down by 0.06% to 98.939.

For the Loonie

It’s a quiet day ahead on the economic calendar, with key stats limited to 4th quarter current account figures out of Canada.

We can expect the numbers to have a muted impact on the Loonie, however.

Focus through the day will be on the economic outlook and demand for crude oil, which remains Loonie negative.

The Loonie was down by 0.06% at C$1.3341 against the U.S Dollar, at the time of writing.

AUD/USD Price Forecast – Australian Dollar Breaks Down Again

The Australian dollar has broken down during the trading session on Wednesday, as we continue to see a lot of US dollar strength in of course people running away from anything in Asia. The Australian dollar has been extraordinarily week, and it certainly seems as if it is only a matter of time before we break down yet again. At this point, the market is likely to see continued negativity, and I think at this point it probably goes looking towards the 0.63 level which is the bottom of the range that we had been in during the financial crisis over a decade ago. Yes, we are that low as far as value is concerning.

AUD/USD Video 27.02.20

Looking at the Australian dollar, you should keep in the back of your mind that it is highly levered to China, and at this point in time it’s likely that the market continues to get hammered as China is still fighting the virus and not quite back to work. As long as that is the case, there will be a lot of weight around the neck when it comes to the Aussie, as China is by far its biggest customer. As long as that’s the case, Australia continues to suffer. I do believe that the rate cuts will be coming rather soon, and the market is presently in the process of trying to price that in. Overall, rallies are to be sold and I think the 0.67 level above is essentially the “ceiling” in the market.

AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured as Downside Risks to Economic Growth Increase

The Australian Dollar hit a multi-year low on Wednesday and the New Zealand Dollar fell in sympathy with its neighbor amid coronavirus fears and the release of disappointing Australian construction data.

The higher-yielding Aussie and Kiwi have been pressured for weeks by expectations that the coronavirus’ impact on China’s economy will spread to their respective economies, forcing their central banks to cut interest rates sooner than expected.

At 08:42 GMT, the AUD/USD is trading .6577, down 0.0024 or -0.37% and the NZD/USD is at .6310, down 0.0012 or -0.19%.

In other news, the Australian Bureau of Statistics showed the value of construction work done in the December quarter of 2019 declined, putting further pressure on the Reserve Bank of Australia to take aggressive action to spur economic growth.

Coronavirus Fears Capping Gains, Driving Selling Pressure

The Australian Dollar reached an 11-year low versus the greenback on Wednesday as downside risks to global growth from the spread of the coronavirus continued to grow.

“With containment measures in South Korea and Italy, the global economic impact can be expected to widen and this can only be bad news for commodity currencies” like the Aussie and the New Zealand dollar, said Jason Wong, a senior markets strategist at Bank of New Zealand in Wellington. “Further downside pressure looks inevitable.”

Australian Construction Spending Slides to 3-year Low

Australian construction spending slid to its lowest in almost three years last quarter as a deepening downturn in home building spread to other sectors and posed a downside risk to growth across the economy.

The weakness in housing is also unlikely to turn anytime soon as the industry wrestles with an overabundance of new apartment blocks begun when the market was booming.

Wednesday’s figures from the Australian Bureau of Statistics showed inflation-adjusted construction fell 3.8 percent in the June quarter, from the previous quarter, to stand at A$48.8 billion (US$45.75 billion). That was the lowest amount since late 2016 and off 11.1 percent from a year earlier.

The quarterly drop was far steeper than the 1 percent fall forecast by analysts and suggested gross domestic product (GDP) might also miss estimates, perhaps badly. The data is due on September 4.

“With construction representing around 13 percent of the economy this result will dent GDP, potentially in the order of 0.4 percentage points,” said Westpac senior economist Andrew Hanlan. “The housing downturn still has further to go and will weigh on conditions throughout 2019 and into 2020.”

Daily Forecast

Continue to look for more downside pressure on the Australian Dollar amid fears the impact of the coronavirus and the bushfires will shrink the Australian economy in the first three months of the year.

Economists at ANZ estimate the impact of the coronavirus will slash 0.5 of a percentage point off March quarter gross domestic product and a smaller hit from the bushfires.

The bank forecasts the economy to contract 0.1 percent in the first quarter, before recovering later in the year.

Risk Aversion Likely to Linger, with Economic Data on the Lighter Side Today

Earlier in the Day:

It was another quiet day on the Asian economic calendar this morning. The Aussie Dollar was in action, with housing sector data in focus.

For the Aussie Dollar

Construction work done slid by 3% in the 4th quarter, following a 0.4% fall in the 3rd quarter. Economists had forecast a decline of 1%.

According to the ABS,

  • Total building work done fell by 4.1%, while total engineering work down fell by 1.5%

The Aussie Dollar moved from $0.65979 to $0.65989 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.17% to $0.6593.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.01% to ¥110.21 against the U.S Dollar, with the Kiwi Dollar down by 0.14% to $0.6312.

Outside of the numbers, the markets reacted to the overnight slide in the U.S majors and news updates on the spread of the coronavirus.

The risk aversion weighed on the Aussie Dollar and Kiwi Dollar and the Asian equity markets, with the Nikkei down by 1.96% at the time of writing. The ASX200 led the way down, however, tumbling by 2.12%.

The Day Ahead:

For the EUR

It’s another quiet day ahead on the economic calendar. Key stats include French jobseeker figures. Barring a marked increase, the numbers are unlikely to have a material impact on the EUR, however.

Outside of the numbers, risk sentiment will continue to pressure the EUR. Economic disruption stemming from the spread of the coronavirus is expected to materially affect the Eurozone economy.

ECB President Lagarde, due to speak later today, could raise the prospects of further support. She may, however, also call on member states to deliver fiscal policy support. Such calls from the ECB have fallen on deaf ears until now.

At the time of writing, the EUR was down by 0.09% at $1.0872.

For the Pound

It’s also a quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

We saw the Pound find strong support on Tuesday as EU ministers talked of a substantial, ambitious and wide-ranging partnership with the UK.

With talks scheduled to commence next week, the British government is due to release its terms of negotiations tomorrow. The markets will get an idea of just how far apart the two sides are…

At the time of writing, the Pound was down by 0.02% to $1.3003.

Across the Pond

It’s a relatively quiet day ahead on the U.S economic calendar. January’s new home sales figures are due out later today.

With a lack of stats for the markets to consider, expect some Dollar sensitivity to today’s numbers. Mortgage rates and labor market conditions are all supportive of the housing sector. Any weakness in sales may test risk sentiment.

Ultimately, however, the Dollar will be wedged between sentiment towards monetary policy and safe-haven demand.

Last week’s private sector PMIs and the continued spread of the coronavirus has raised the probability of the FED cutting rates.

At the time of writing, the Dollar Spot Index was up by 0.07% to 99.035.

For the Loonie

It’s a quiet day ahead on the economic calendar, with no material stats due out of Canada to provide direction.

The lack of stats will continue to leave the Loonie in the hands of market risk appetite and crude oil prices.

A steadying of crude oil prices early in the day eased pressure on the Loonie.

The Loonie was down by 0.02% at C$1.3281 against the U.S Dollar, at the time of writing.

AUD/USD Price Forecast – Australian Dollar Continues To Wilt

The Australian dollar has initially tried to rally during the trading session on Tuesday, but continues to see a lot of selling pressure, mainly because of the coronavirus. After all, the Chinese economy is flat on its back so it’s very likely we will continue to see a lot of selling pressure when it comes to all things China related, and by extension the Australian economy. Ultimately, the demand for copper is a good proxy for the Australian economy as well, as most of the Forex trading is done looking at things like commodity exports to the mainland.

AUD/USD Video 26.02.20

Furthermore, it appears that the Reserve Bank of Australia is likely to cut rates in the near future, and that of course weighs upon the Australian dollar. Ultimately, I do think that we will continue to go lower, as has been seen so far this week. Fading rallies continues to work and in my estimation, we will probably go looking towards the bottom of the financial crisis low which is closer to the 0.63 handle. With this being the case, I do believe that there is a bit of a “ceiling” closer to the 0.67 handle, which should continue to attract a lot of selling pressure based upon the recent action. If we were to break above the 0.6775 handle, then it’s likely that we could go much higher, perhaps reaching towards the 0.70 level over the longer term. It does look as if we are trying to go lower, but if that scenario was the play out you would have to follow right along.

AUD/USD Forex Technical Analysis – Counter-Trend Buyers Hoping for Breakout Over .6642

The Australian Dollar is trading lower on Tuesday, but remains inside last Friday’s wide range for a second day as investors continue to assess the potential economic damage from the coronavirus outbreak. The price action suggests investor indecision and impending volatility.

Due to the impact of the virus on China’s economy, the economy of its major trading partner Australia is expected to face major challenges in the near future. “Even if the virus condition start(s) to get contained and we have real activities picking up in March, it’s very difficult to see China having any material growth in the foreseeable future,” said Becky Liu, head of China macro strategy at Standard Chartered Bank.

At 10:08 GMT, the AUD/USD is trading .6601, down 0.0003 or -0.05%.

The recent price action suggests that investors are raising bets that the Reserve Bank of Australia (RBA) will make moves in the near future to stimulate the economy. Until there are real numbers to support these expectations, we could see periodic pockets of support developing like the AUD/USD has been experiencing the past two sessions.

Daily AUD/USD

Daily Technical Analysis

The main trend is down according to the daily swing chart. However, momentum may be getting ready to shift to the upside after Friday’s dramatic closing price reversal bottom. Today’s U.S. consumer confidence report could be the news that changes momentum today.

The AUD/USD is in no position to change the main trend to up, but a trade through Friday’s high at .6639 could fuel further short-covering. A trade through .6586 will negate the closing price reversal bottom and signal a resumption of the downtrend.

Daily Technical Forecast

The key area to watch today is the resistance cluster formed by a downtrending Gann angle at .6634, Friday’s high at .6639 and another downtrending Gann angle at .6642.

Taking out .6639 will confirm the closing price reversal bottom, overtaking .6642 will indicate the short-covering is getting stronger and taking out .6642 could trigger an acceleration to the upside with the target a short-term retracement zone at .6668 to .6687. Since the main trend is down, sellers will likely reemerge on a test of this area.

If there is no short-covering rally then look for prices to drift lower towards last week’s multi-year low at .6586. Taking out this level could trigger another round of heavy selling pressure.

GDP Numbers and U.S Consumer Confidence Put the EUR and USD in Focus

Earlier in the Day:

It was a quiet day on the Asian economic calendar this morning, with no material stats to provide direction on the day.

The lack of stats left the markets to lick its wounds following Monday’s risk aversion.

For the Majors

At the time of writing, the Japanese Yen was down by 0.07% to ¥110.8 against the U.S Dollar. The Aussie Dollar was up by 0.18% to $0.6617, with the Kiwi Dollar was up by 0.13% to $0.6348.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. Key stats include Germany’s 2nd estimate GDP numbers for the 4th quarter.

Barring deviation from 1st estimates, however, the numbers are unlikely to have too much of an impact on the EUR.

Following Monday’s sell-off, support through the early part of the day will likely continue through to the U.S session.

Any slide in U.S consumer confidence and risk aversion could return later in the day, however, which would be EUR negative.

At the time of writing, the EUR was up by 0.11% at $1.0866.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

Risk sentiment will be the key driver on the day, with Brexit chatter also in focus. EU member states are due to deliver the finalized terms for trade negotiations.

Unrealistic demands would be Pound negative.

At the time of writing, the Pound was up by 0.11% to $1.2938.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. December house price and February consumer confidence figures are due out later today.

Expect consumer confidence figures to be the key driver. Following some disappointing private sector PMI numbers last week, weak consumer confidence figures would be another red flag.

Fears of a U.S recession had disappeared at the turn of the year. That could change should we see consumer confidence slump.

At the time of writing, the Dollar Spot Index was down by 0.15% to 99.214.

For the Loonie

It’s a quiet day ahead on the economic calendar, with no material stats due out of Canada to provide direction.

The lack of stats will leave the Loonie in the hands of market risk appetite and crude oil prices.

A steadying of crude oil prices early in the day eased pressure on the Loonie this morning.

The Loonie was up by 0.07% at C$1.3284 against the U.S Dollar, at the time of writing.

Global Stock Markets Plunge As The Virus Arrives In Europe

Global markets tanked as with the COVID 19 arriving on Europe’s doorstep; it has magnified investors’ attention to the single most significant global risk of the virus crisis, the fear of clustering cases outside of China.

Risk-off sentiment intensified Monday as the S&P500 is down around 2½% heading into the close with European equities falling almost 4% and smaller losses through Asia as Covid 19 mushrooms from an Asia centric concern to a global nightmare.

US 10Y yields fell a further 9bps to 1.38%, the lowest since July 2016, while 30-year yields set another record low of 1.84%, having fallen ~20bps in the past week.

Oil is down more than 4%, and copper fell 1.5%. Even as the number of new cases in China is declining and the WHO indicates that the virus there has peaked, the market has reacted to growing evidence of spreading infections outside China: notably Italy, Iran, and Korea.

The risk-off tone overnight has seen the US2s10s curve at its flattest since October, and as the interest rate and growth, differentials continue to support capital flows into the US.

And absent a more dovish Fed, these tenacious structural trends are showing little signs of abating as global investors seek safe harbor under the umbrella of US bond yields, creating a supercharged USD dollar. However, its the dollar strength that the Fed might not be able -even if willing – to tolerate as the strong USD both tightens financial conditions and depress oil and commodity prices sufficiently enough for the Fed to miss their inflation targets. The irony here for gold investors is that a weaker dollar could lessen the chances of a Fed rate cut.

There has been very little data flow do divert attention away from the coronavirus. Still, Fed speak, both hawk and dove didn’t sound off any rate cut alarm bells as Cleveland Fed’s Loretta Mester (voter /hawk) and Minneapolis Fed’s Neel Kashkari (voter/dove) both advocated policy prudence.

The WHO director-general called the outbreaks “deeply concerning,” though he also noted that the WHO was “encouraged by the continued decline in cases in China.

Even as the market focusses on recent outbreaks outside China, Chinese activities are starting to recover.; if the Chinese labor force activities recover quickly, then PBoC stimulus effort will start paying dividends via ramped up domestic production.

Admittedly with many unknows surrounding the impact. But there are a few knows. China is coming back on the grid while governments and global central banks aren’t about to let this insidious virus snatch defeat from the jaws of victory.

Oil markets

With the virus arriving in Europe, it has magnified the oil market’s attention to the single most colossal risk of the virus crisis, the fear of a “super spreader” outside of China.

This appears to have materialized over the weekend, with a considerable number of cases reported in South Korea and Italy.

And using China as a template, the most immediate economic impact is likely to be aggressive containment measures and travel bans. So similarly, to the primary containment measures in China, traders went into sell first ask questions later mode for fear of more evidence that the outbreak is spreading in Europe or even to the United States.

From a technical perspective, the so-called OPEC+ straddle implied price bottom between $50-50.25 is holding as the thought of a move below $50 makes a more massive OPEC + production cut response more likely.

WTI continues to respect his level, but with thoughts of “disease X “keeping investors awake at night, China teapot refinery activities need to come roaring back with a vengeance.

And with China workers appearing abler and willing to come back online, it could go a long way to stabilizing regional risk sentiment.

Gold markets

On the back of a colossal position build over the past week, gold investors found themselves a bit too far over their skies and absent a decisive shift in Fed speak, the markets insatiable demand for gold has temporarily abated as profit-taking has set in.

From a technical perspective after yesterday’s launchpad on the back of a massive parabolic rally, the failure to break $ 1700 was a touch disappointing and likely caused some technical unwinds.

However, the afternoon gold liquidation could be related to equity margin calls rather than any underlying market weakness, given the overtly risk-off tone dominating the markets The steep declines in stocks may have triggered the need to meet margin requirements by some investors and necessitate the sale of liquid assets such as gold. So, if this is indeed the case once these margin obligations are covered, gold could rebound a touch.

But with a possible recentring of risk on a more favorable Asia centric theme, the slower rate of infection in China has eased demand for hedges, so gold price action may not be as robust today.

Currency Markets

Asia FX

The turning point for the Asia FX remains less clear as global risk aversion comes to the fore as Covid19 cases are getting reported abroad, redoubling the global fear factor.

In this environment, foreign investors have gone cold on riskier assets in favor of the umbrella of US treasuries, which is creating USD demand as investors favor the USD over more China sensitivity Asia currency growth proxies.

Until we see a significant increase in people going back to work in China and the PBoC stimulus paying dividends via ramped up domestic production, Asia FX could languish.

The Malaysian Ringgit 

Political uncertainty on the back of PM Mahathir resignation and as the power struggle intensifies leaves the government in a state of gridlock at a time when policy inputs are most needed to ward off the economic tumult from a protracted USD-China trade war and the double whammy effect from the coronavirus.

The Australian Dollar

FX markets look to be moving from “Asia is the epicenter of COVID” and with the lights starting to flicker across China’s industrial heartland decent support is beginning to build around AUDUS .6600 as Asia key currency barometer the Yuan remains on an even keel on anticipation of the ramp-up in production

The Euro 

Better PMIs out of Europe at the end of last week helped to put a stop to the EUR’s slide, though in an environment where the USD still looks to be the safe haven of choice, it may be hard for the EUR to recoup too much ground. Germany’s IFO index saw both current conditions and business expectations improve slightly in February, despite market expectations of a modest decline.

With the coronavirus spreading in Europe, immediate EURUSD weakness may not be a foregone conclusion on the back of the virus crisis. The primary driver of recent euro weakness has been carry trade-related funding. If the virus were to spread across Europe, the negative growth impact could be offset by an unwind of carry trades amidst risk-aversion. What’s more, a severe economic impact is likely to see a more significant monetary policy response from the Fed rather than the ECB given available monetary policy space.

The Swiss Franc

The European outbreak of the virus should make the Swiss franc an even more popular safe haven. It is the only European currency with a negative beta to growth. As the SNB appears resigned to staying on the sidelines, funding carry trades in francs has been far less prevalent than in euros or yen.

The Japanese Yen

An epic debate is raging behind the scenes over whether or not we are witnessing a regime shift USDJPY. Is it or isn’t it losing its safe-haven status? But overnight, the JPY was clearly a safe-haven bet as the focus has shifted from China to Europe. JPY loses its haven appeal when the exogenic shock comes from China but not from global risk aversion.

With virus fear spreading in Europe, the JPY should, in theory, also benefit from the squeeze on its funding shorts.

AUD/USD Price Forecast – Australian Dollar Gaps Lower

The Australian dollar has gapped lower to kick off the trading session on Monday, as we continue to have a lot of coronavirus fears out there, that of course is going to weigh upon the Australian economy as it is so highly levered to China, and of course the rest of Asia as well. As the virus is starting to spread throughout that region, it makes quite a bit of sense that the Aussies will suffer at the hands of this issue as well. A bounce from here should simply offer a nice selling opportunity, especially near the 0.67 handle.

AUD/USD Video 25.02.20

Any signs of exhaustion in this area would be a nice selling opportunity, as it would offer value in the US dollar. If we were to break down below the bottom of the candlestick for the trading session on Monday, that could send this market towards the 0.63 level, which I do think is ultimately the destination as this market has completely collapsed. That doesn’t mean we get there tomorrow, and obviously we need to get in an area that offers plenty of value in the US dollar to feel confident shorting. It’s not until the market breaks above the 0.6775 level that I’d be willing to buy this market, as the Australian dollar is suffering for multiple reasons.

The Reserve Bank of Australia is very likely to cut rates relatively soon, and that of course is been priced in this market. Furthermore, the Peoples Bank of China continues to do what they can to liquefy markets, so it has a bit of a “knock on effect” over here.

AUD/USD and NZD/USD Fundamental Daily Forecast – All Signs Pointing to Economic Weakness, Rate Cuts

The Australian and New Zealand Dollars are trading lower on Monday and in a position to resume the early sell-off from Friday that was temporarily interrupted by a short-covering rally that was fueled by weaker-than-expected U.S. economic data.

The selling pressure on the Aussie and Kiwi are likely being fueled by a sharp rise in coronavirus cases in South Korea, a major trading partner with Australia and New Zealand. In fact, economic weakness in China, Thailand, Vietnam and Indonesia is also weighing on prices.

At 07:51 GMT, the AUD/USD is trading .6592, down 0.0035 or -0.53% and the NZD/USD is at .6308, down 0.0044 or -0.69%.

Investors are essentially being spooked by the secondary infections that they’ve seen outside of China. “The sheer explosion of the rate in South Korea has been quite frightening … there’s a sobering realization that this could really impact hard and fast,” according to Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

Aussie and Kiwi investors are also fretting over the mounting economic toll from the virus, betting on more monetary policy action from central banks. The financial markets in Australia and New Zealand are beginning to signal more rate cuts later this year.

New Zealand Retail Trade Growth Slows in Q4

The volume of total retail sales in New Zealand rose a seasonally adjusted 0.7 percent in the last quarter of 2019, Statistics New Zealand said on Monday, easing from an upwardly revised 1.7 percent increase in the previous period. Traders were looking for an increase of 0.8 percent.

The total value of retail sales was up 1.1 percent on quarter or NZ$268 million. Additionally, nine of the 15 industries had higher sales volumes in the December 2019 quarter.

Year-on-year, retail trade went up 3.3 percent, following a 4.5 percent gain in the prior period.

In another report, Credit Card Spending came in at 3.7%, up from 3.5%.

New Zealand Extends Ban on China Arrivals; No Curbs Yet for Other Nations

New Zealand has extended for eight days a ban on arrivals from mainland China, Prime Minister Jacinda Ardern said on Monday, carrying into its fourth week an effort to block exposure to the coronavirus. But New Zealand has no plans for now to widen the ban to other countries, Ardern told a news conference, adding, “We continue to focus on the epicenter of outbreak.”

Ardern added that it was highly likely the virus would eventually arrive in New Zealand, although it has no confirmed infections.

Finance Minister Grant Robertson said the government would step in to assist businesses hit by the spread of the virus, if there is a long lasting shock to the economy or a global economic recession, but he did not expect one at the moment.

“If either of these scenarios play out it will be important for the government to play a role to invest in the economy to support New Zealanders and Kiwi businesses,” he added.

Daily Forecast

There are no major U.S. economic reports on Monday so the focus will be on investor demand for safe-haven assets. This means that money is likely to flow back into the U.S. Dollar after Friday’s counter-trend sell-off.

Expectations are that China’s economy will take a major hit during the first quarter so we expect weakness in the Australian and New Zealand economies. Both are major trading partners with China.

With a weaker economy comes calls for lower interest rates. This is making the Aussie and Kiwi less-desirable assets.

Coronavirus Updates Drive Demand for the Dollar as Riskier Assets Slide

Earlier in the Day:

It was a relatively quiet day on the Asian economic calendar this morning. The Kiwi Dollar was in action, with 4th quarter retail sales figures in focus.

Outside of the numbers, risk aversion plagued the markets once more as news updates on the spread of the coronavirus hit the wires.

For the Kiwi Dollar

Retail sales rose by 0.7% in the 4th quarter, following a 1.7% increase in the 3rd quarter.

According to NZ Stats,

  • Electronics, including appliances mobile phones, and computers had the largest sales volume increase for a 3rd consecutive quarter. Sales volume rose by 4.3% following a 4.4% increase in the 3rd
  • 9 of 15 retail industries saw higher sales volumes in the 4th
  • Department stores had the largest fall in sales volume, with volume down by 3.8%. In the 3rd quarter, volumes had increased by 3.8%.

At the time of writing, the Kiwi Dollar was down by 0.46% to $0.6320.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.04% to ¥111.57 against the U.S Dollar, with the Aussie Dollar down by 0.32% to $0.6606.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include Germany’s IFO Business Climate Index figures for February.

Following better than expected consumer confidence figures last week, any improvement would provide the EUR with much-needed support.

The stats will need to be impressive, however, to offset the early slide stemming from news updates on the coronavirus.

At the time of writing, the EUR was down by 0.23% at $1.0822.

For the Pound

It’s a quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

The lack of stats will leave chatter on Brexit and market risk appetite to influence.

Strong demand for the Dollar weighed early in the day as the spread of the coronavirus in South Korea continued to hit risk appetite.

At the time of writing, the Pound was down by 0.21% to $1.2937.

Across the Pond

It’s a quiet day ahead on the economic calendar, with no material stats to provide direction for the Dollar.

Following Friday’s pullback that came in response to the PMI numbers, the Dollar was on the move early this morning.

Risk aversion continued to drive demand for the Dollar, as Korea announced that its disease alert level was hoisted to its highest level.

At the time of writing, the Dollar Spot Index was up by 0.29% to 99.5470.

For the Loonie

It’s a relatively quiet day ahead on the economic calendar, with December wholesale sales figures due out of Canada.

While the stats will garner some interest, we don’t expect any long-lasting influence on the Loonie.

News of a further spread of the coronavirus through the weekend weighed on crude oil prices at the start of the week. Demand is expected to take a bigger hit than had been initially anticipated, which led to the early pullback, leading to the early slide in the Loonie.

The Loonie was down by 0.30% at C$1.3265 against the U.S Dollar, at the time of writing.

AUD/USD and NZD/USD Fundamental Weekly Forecast – Pressured by Growing Fears of Virus’ Economic Fallout

The Australian and New Zealand Dollars finished lower last week as concerns over the economic impact of the coronavirus and future moves by the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) dominated the trade.

Most of the week, the Aussie and Kiwi were pressured by a stronger U.S. Dollar as traders flocked to the greenback for safe-haven protection. On Friday, however, both currencies reversed to the upside after U.S. economic data showed weakness in the manufacturing and services sectors.

Last week, the AUD/USD settled at .6627, down 0.0087 or -1.29% and the NZD/USD finished at .6352, down 0.0082 or -1.28%.

The economic impact of the coronavirus will continue to be at the forefront this week, but the biggest impact will be revealed on Saturday when China releases its Manufacturing PMI and Non-Manufacturing PMI reports.

In Australia, traders will get the opportunity to react to the latest data on Private Capital Expenditure. The report is expected to show a 0.5% increase, up from -0.2%.

In New Zealand, the key reports are Retail Sales and ANZ Business Confidence. Retail Sales are expected to have risen 0.8%. There is no estimate for ANZ Business Confidence, but it is likely to come in worse than the previously reported -13.2.

Australian News

Minutes from the Reserve Bank of Australia’s (RBA) first meeting of the year fuelled expectations of lower interest rates, driving the AUD/USD lower.

The RBA left rates at a record low 0.75% at that meeting, but the minutes showed it was prepared to ease policy further.

In other news, Australian employment surpassed expectations for a third straight month in January but the jobless rate jumped by more than analysts had predicted, a mixed outcome that drove the Aussie lower, while fueling the argument for more stimulus.

Thursday’s data from the Australian Bureau of Statistics (ABS) showed 13,500 net new jobs were created in January, beating forecasts for 10,000 and following a surprisingly strong 28,900 gain in December. All of the increase was led by full-time work, which surged 46,200 while part-time jobs fell by 32,700.

Despite the rise in employment, the unemployment rate jumped to 5.3% from 5.1% in December which was the lowest reading since March 2019 as more people went looking for work. Analysts had predicted that number would rise to 5.2%.

New Zealand News

There were no major releases from New Zealand last week. The Kiwi’s decline was largely attributed to sympathy selling in response to the weakness in the Australian Dollar.

On Friday, RBNZ Governor Orr said in a speech that the central bank needs to be prepared for the unanticipated. He was talking about the economic impact of the coronavirus, of course. He also said he is in no hurry to go lower with the cash rate and the RBNZ is in a favorable position with the Official Cash Rate (OCR) at 1%. He further added that record low international interest rates are a new challenge for the central bank.

Weekly Forecast

Despite Friday’s rebound rally in the Aussie and Kiwi, the trend is likely to remain down. We’re expecting to see a further decline in both currencies because investors are likely to remain skittish over the coronavirus.

Even if reports start to show the virus outbreak receding, global growth is still set to fall to zero in the first quarter. A near-term hit to the Australian and New Zealand economies looks unavoidable.