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AUD trades below 70 cents

Published January 3, 2019

by Nicholas Cork

AUD took a blow yesterday after Chinese manufacturing data showed another indication of a slowing Chinese economy when the Caixin PMI survey release showed a fall below 50, signaling contraction, for the first time since May 2017. The currency held a firm test of 0.7000 soon after before a late afternoon squeeze saw AUD back towards 0.7040, but more weak manufacturing readings via PMI data across Europe overnight spooked investors, which led to further risk averse trading and AUD again was testing 70 cents before dipping below there before the NY open. The data would have no doubt disappointed the ECB as France joined Italy in contraction mode for the first time in over 2 years when the French PMI slipped below 50, and growth in Germany and Spain was modest at best as they fell to 30 month lows. UK data however surprised with its strength but was attributed to factories ramping up stockpiling as they prepare for possible border delays, so not really a sign of a burgeoning UK manufacturing sector. The data was all too much for the DOW futures which were sitting 300 points lower prior to the official open.

The NY session has been relatively calm with the DOW spending most of the session trying to make back those 300 points mentioned above. The GBP fell as a no-deal Brexit fears increased (again), and the CHF and YEN gained sharply from safe-haven flows (again).  AUD traded at a 2 year low near 0.6980 before hovering around 70 cents right now, the NZD traded at one month lows but gained some support from the Global Dairy Auction which shows prices 10% higher than November, and the CAD lifted off 18 month lows as Oil made gains as Middle Eastern production cuts appear to be occurring. Notably yesterday the AU interest rate futures had their largest fall in yields since early 2018 as the curve fell approx. 10 basis points, led by a jump in negative sentiment and the resulting bets being placed that the next move in interest rates here will be a cut!  

So all in all not a very comforting start as investors adopt a defensive stance, with some perhaps taking note of China’s Xi’s speech yesterday where he reignited Taiwan discussion (and goaded the USA) by saying  China is “willing to create a vast space for peaceful unification, but we will never leave any room for any sort of Taiwan independence separatist activities.” Taiwan responded soon after saying they would never accept the “one country, two systems” approach. Watch this space…..

CHART : AUD (orange) vs DOW ..  last 6 weeks of price action  (Reuters)