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AUD treading water

Published December 11, 2018

by Nicholas Cork

AUD managed to hold above the 0.7150 support overnight, and in fact rebounded towards 0.7230 before the Brexit non-vote announcement came through and took the floor away.  A quick move back towards 0.7175 ensued as the GBP fell 230 points, and the AUD hovers below 72 cents again this morning.  All eyes will be back on the GBP now as PM May looks to return to Brussels and renegotiate, with the main sticking point still being the soft Irish border with its 208 crossings, but her political capital must be starting to wane in the EU. US equities managed to survive the session eking out small gains as technology stocks in demand, but banking shares took a hit as the Brexit vote fell through.

US Treasuries saw a reversal in the recent fall in yields with both the 2 and 10 year yield popping higher after 2 weeks of falls, which should keep some downward pressure on the AUDUSD. Goldman Sachs released quite a good note reinforcing their reasoning for less US hikes, prefacing with “relative to the turmoil in the financial markets, the economic numbers have been remarkably stable recently.”  But they see an 80 basis point rise in the GS measure of “financial conditions” which could trim 0.75/1.00 % off GDP, and that 80 bp “tightening may lead to fewer rate hikes than seemed likely earlier. We think they do-and should-respond to the economic implications of material and sustained changes in financial conditions by adjusting the funds rate path.”

AUDUSD support still  lies at 0.7150 today.