Forex 5 minutes to read

AUD wilts further on weak GDP

John Hardy

Head of FX Strategy

Summary:  A weaker than expected Q4 GDP print sees the AUD lower overnight, even as RBA Governor Lowe remains firmly optimistic. Elsewhere, EURUSD has pushed back to the 1.1300 level ahead of tomorrow’s ECB meeting.


Australia’s Q4 GDP came in at half the anticipated rate – a mere +0.2% versus the +0.4% QoQ expected. The Reserve Bank of Australia’s Philip Lowe had another chance overnight to spin the situation in a bit more cautious light, but he insisted on maintaining a positive outlook, hoping that the Australian economy could weather the housing slump. 

Elsewhere, price action remains muted, with USD and JPY firmness the most salient theme besides sterling volatility as we count down the days to the Brexit endgame. The market showed little reactivity to a very strong ISM non-manufacturing survey for February. Today we watch for how the market treats USDCAD over the Bank of Canada meeting and a speech from the Fed’s John Williams. By the end of the week, the market will have more to chew on after tomorrow’s European Central Bank meeting and whether the US February jobs report sees new highs for the cycle in average hourly earnings.

Trading interest

Long USD: remaining short AUDUSD and long USDCAD and short EURUSD – tightening stops slightly here on further progression of these trades – 1.1380 on EURUSD, 1.3270 on USDCAD and 0.7095 on AUDUSD.

Considering EURJPY downside again – will check back post-ECB tomorrow – for now, 2-month put spreads an idea for half a position

Chart: AUDUSD

AUDUSD is down through the first layer of support around 0.7055 after a weak GDP print. RBA Governor Lowe maintains an optimistic stance, but the market is increasingly second guessing this rosy outlook and beginning to more firmly price rate cuts, though odds for a cut don’t rise above 50% probability until the August RBA meeting. We continue to watch for a breakdown below 0.7000 – particularly if we continue to see resilient or better US data that sees the market second guessing and delaying the expected time frame for the Fed’s shift to a more accommodative stance. 
 
Source: Saxo Bank
The G10 rundown

USD – the US dollar is trading firmer across the board outside of USDJPY, where the yen is likely to outperform on any notable further shift lower in risk appetite. Watch out for Fed’s Williams (voter) out speaking today. 

EUR – the February Eurozone services PMIs were revised slightly higher from the preliminary estimates, but this isn’t enough to lift sentiment for the single currency and the ECB not likely to inspire confidence either, as the next policy moves of any impact (i.e., not TLTROs etc.) will have to come from the fiscal side.

JPY – interesting to note the lack of a response in treasuries to a very strong US data point yesterday – helping the yen to continue to firm. Further risk off on signs of momentum finally rolling over in risky assets could add a bit more fuel for further JPY consolidation.

GBP – sterling was volatile yesterday both on concern that the EU’s chief Brexit negotiator Michel Barnier would not offer any alterations to the EU’s stance but also on remarks by the UK Attorney General, Geoffrey Cox, that there is still hope for a breakthrough. 

CHF – USDCHF came to life and posted its highest close in two weeks yesterday – further upside is contingent on a strong USD. EURCHF is thoroughly rangebound ahead of ECB – watching for reactivity there.

AUD – weak GDP print overnight adds to the downside risk, though we still trade within the range in the key AUDUSD pair and China’s CNY floor makes the outlook for a break lower more challenging. Still see pressure to downside until proven otherwise.

CAD – a potentially important Bank of Canada meeting today if it raises its level of concern in line with the steady decline in rate expectations. The market is actually more aggressively positioning for the first rate cut from the Fed than from the BoC (no easing yet priced). USDCAD trading at important resistance around 1.3375.

NZD – weak AUD data powering a bit of AUDNZD downside, and we watch for a possible new low close for the cycle today as the market prices the RBA to lead and exceed the Reserve Bank of New Zealand in pivoting toward providing more policy accommodation.

SEK – EURSEK rejected the test of the recent cycle highs above 9.60 – providing a technical hook for bears looking to get involved for consolidation well back into the range. Keep in mind the krona’s historically weak in real effective exchange rate (REER) terms.

NOK – looking for that confirmation that we have yet to see after the large bearish reversal in EURNOK that unfolded over year-end and into January. Let’s have a look at how the market treats the ECB meeting tomorrow. Risk appetite and oil prices more important in other NOK pairs.

Upcoming Economic Calendar Highlights (all times GMT)

11:15 – US Feb. ADP Employment Change
13:30 – Canada Dec. International Merchandise Trade
13:30 – US Dec. Trade Balance
15:00 – Canada Bank of Canada Rate Decision
15:00 – Canada Feb. Ivey PMI
15:30 – US DoE Weekly Crude Oil / Product Inventories
17:00 – US Fed’s Williams (Voter) to speak
19:00 – US Fed Beige Book
00:30 – Australia Jan. Retail Sales
 
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
3 Church Street, #30-00
Samsung Hub
Singapore 049483

All departments are available 08:30 to 17:30 Monday to Friday.

Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.