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A big week ahead

Published February 4, 2019

by Nicholas Cork

The AUD continued to consolidate on Friday, with some of the wind taken from its sail when an index of Chinese manufacturing data showed a fall to 3 year lows, causing the AUD to test back towards 0.7230 in the late afternoon. Technically there is some strong resistance in the 0.7290/0.7310 zone which has helped cap the recent rally, as shown in the chart below. Overnight trading also remained subdued, although a strong bounce in a US manufacturing gauge, backed up by a US employment result that showed that twice the expected jobs were added in December, caused the market to have a quick second think on the Fed’s path (which is now data dependant), resulting in gains for the USD,  US yields rose across the curve, and equities remained subdued.

So locally we are all set for a busy data week in thin conditions as Asia steps out for their New Year celebrations.  The highly erratic building approvals is the first release due today, and historically it is an extremely volatile series which is coming off a previous reading of -9.1%, so don’t be alarmed at the headline. Tomorrow becomes quite relevant as we have Retail Sales, Trade Balance and the RBA Cash Rate announcement in the afternoon. NZ has a big day on Thursday with Dairy Price Auction results (as important to them as iron ore is to us) and NZ unemployment.  All to be watched closely for clues the next move in Interest Rates.

This afternoon sees the release of the Hayne report and recommendations into the Banking Sector which I hear will be public around 4pm. Hedge funds are watching with interest as a report from Macquarie shows a recent jump in the value of short selling positions against the banks to the tune of 2 bio. This short position against the big 4 banks now totals a massive 5.3 bio at the end of Dec, (1.5% of the banks’ market cap), up from 3.3 bio previously. The risk could be now that the report is tame and bank shares rise again .. let’s see.

AUD faces resistance at 73 cents     (reuters)