Analysts at CIBC, see the Australian dollar weakening versus the US dollar on the back of actions implemented by the Reserve Bank of Australia (RBA). The forecast AUD/USD at 0.69 by the fourth quarter.
“A broad reversal and consolidation of USD weakness has contributed to AUD/USD losses, though weakness on other crosses, including vs JPY, EUR and CAD is more telling. We anticipate further weakness over the coming weeks and into the next year.”
“Weakness will be driven by a challenging domestic economic environment – highlighted by slowing growth and rising unemployment. The RBA will respond with greater monetary accommodation, and continue, at times subtle, efforts to talk the currency lower. Ongoing tension with China, that has seen some exports to the country slow, or face restrictions, are concerning.”
“The RBA may have previously ruled out negative cash rates, though by mentioning that they remain in the policy toolbox, the market is now not so sure they won’t be used. Our expectation is that the central bank will reduce the cash rate target to 10bps from the current 25bps before year-end. The present YCC target of 25bps in the 3-year tenor is also expected to be cut to the same level.”Full Article
The USD/CAD pair came under heavy bearish pressure during the American trading hours on Wednesday and touched a fresh weekly low of 1.3315. As of writing, the pair was down 0.45% on a daily basis at 1.3325.
A new USD-selling wave hit the markets in the last hour. The fact that there were no clear catalysts behind the USD weakness suggests that month-end flows came into play toward the end of London trading. At the moment, the US Dollar Index (DXY), which tracks the greenback’s performance against a basket of six major currencies, is down 0.16% on the day at 93.72.
Meanwhile, the upbeat market mood, as reflected by the strong gains witnessed in Wall Street’s main indexes, is helping risk-sensitive crude oil prices traction. With the barrel of West Texas Intermediate (WTI) rising nearly 1.5% at $39.65, the commodity-related loonie is preserving its strength against its rivals.
Earlier in the day, the data published by Statistics Canada showed that the Canadian economy expanded by 3% on a monthly basis in July as expected.
On the other hand, the US Bureau of Economic Analysis third estimate revealed that the real Gross Domestic Product (GDP) in the second quarter contracted by 31.4%. Moreover, the Automatic Data Processing (ADP) Research Institue reported that private sector employment in September rose by 749,000, compared to analysts’ estimate of 650,000.
Data released on Wednesday showed real GDP rose 3% in July (m/m), extending the recovery. Analysts at National Bank of Canada point out the recovery that is highly uneven between sectors. They see the recent surge in COVID-19 cases as the main risk to growth.
“Canadian GDP registered yet another steep advance in July but the economic recovery remains highly uneven. On the one hand, some sectors have fully recovered from the COVID-19 shock, with output hovering at or near pre-pandemic peaks.”
“While the economic rebound is likely to have extended into August – Statistics Canada advance estimate suggests production expanded another 1.0% in the month – the steep gap between the best and worst performing industries is likely to endure as long as people keep avoiding social contacts (i.e. until an efficient vaccine becomes widely available). The real question remains whether the recovery can be sustained.”
“We believe it can given substantial fiscal support from the government, but the recent surge in COVID-19 cases in the country will likely cause a significant slowdown in growth in Q4.”
The US economy is going to need more help to get through the next few months. Businesses are beginning permanent layoffs and unemployed workers are running out of money, with few prospects for a quick return to work.
Most major economies have unveiled a new round of stimulus but the US has been deadlocked. Last week it looked like hopes for a stimulus package were dead.
Suddenly, it’s been flipped with Pelosi now saying she’s hopeful. Mnuchin has called this a last-chance effort but at the last minute is when most political deals are made.
The chance of a deal suddenly looks realistic. The White House is proposing $1.5T with escalators that could bring it to $2.0T if the pandemic continues. Pelosi’s ask was $2.2T in her latest proposal so they’re not that far off.
The market is clearly pricing in a rising chance of a deal and I believe it’s responsible for essentially all of the equity market gains since Friday.
On just about every level, a deal makes sense but the political calculations are where it gets murky. Democrats have to be feel good about their election chances right now and I don’t see how boosting the stock market and getting people another $1200 check with Donald Trump’s name on it will help them.
At the same time, if they feel confident enough about their chances, they would rather not govern over a wreckage come January. But maybe there is a chance for a deal in the lame duck session? Mnuchin said he would try again then.
For Republicans, if they feel Trump is behind there has to be some urgency here. Few people have ever lost elections by giving away money. The Senate is an obstacle but if it’s a bipartisan deal then it would only take a few Republicans to get on board.
Mnuchin and Pelosi are meeting at 12:45 pm ET and the market hangs in the balance. Expect some sense of whether a deal could come together to leak out of the meeting or shortly after.
The EUR/USD pair erased daily losses and rose to the 1.1750 area around the London fix, boosted by a USD selloff. Previously the pair bottomed at 1.1683 before rebound more than 50 pips in a few minutes. As of writing, it trades at 1.1740/45, flat for the day and near the weekly top.
The key driver of the move was a decline of the US dollar. The DXY fell to 93.78, reaching the lowest level since September 22. It is under pressure, amid a rally in equity prices in Wall Street and despite higher US yields. Stimulus hopes in the US are supporting stocks that are at two-week highs.
Market participants mostly ignored economic data from the US. The key report was the ADP employment report that showed private sector payroll rose by 749K in September, above expectations.
Yesterday was a record and today is only a slight drop. At these levels I don’t think the UK is going to close more of the economy but we’re only at the start of cold and flu season.
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Crude Oil Stocks Change in the US was -2 million barrels in the week ending September 25th, the weekly report published by the US Energy Information Administration (EIA) revealed on Wednesday. Analysts estimate was for an increase of 1.56 million barrels.
Crude oil prices edged higher with the initial reaction to the EIA’s report and the barrel of West Texas Intermediate (WTI) was last seen gaining 1.5% on the day at $39.66.
“US crude oil refinery inputs averaged 13.7 million barrels per day during the week ending September 25, 2020, which was 300,000 barrels per day more than the previous week’s average.”
“US crude oil imports averaged 5.1 million barrels per day last week, down by 45,000 barrels per day from the previous week.”
“Total products supplied over the last four-week period averaged 17.9 million barrels a day, down by 14.4% from the same period last year.”Full Article
Gold has been looking for a fresh direction after the substantial decline last week. The precious metal was dragged lower with stocks after President Donald Trump refused to say he would accept the election results in a chaotic televised debate.
However, the market mood changed since then, and investors are focusing on a growing chance for a fiscal stimulus deal between Democrats and Republicans. More money printed by the government implies additional funds flowing into gold.
How is XAU/USD positioned on the chart?
The Technical Confluences Indicator is showing that gold faces fierce resistance at $1,890, which is the convergence of the Simple Moving Average 50-4h, the Fibonacci 38.2% one-week, and the Fibonacci 38.2% one-day.
Looking up, a noteworthy upside target is $1,906, which is where the Pivot Point one-day Resistance 1 hits the price.
Support awaits at $1,874, which is the confluence of the SMA 5-one-day, the SMA 100-1h, and the Fibonacci 23.6% one-week.
The next cushion is at $1,863, which is the meeting point between the PP one-month Support 1 and the previous monthly low.
The Confluence Detector finds exciting opportunities using Technical Confluences. The TC is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.Full Article
Be aware. The month end/quarter end London fixing is ahead at 11 AM ET/1500 GMT. That can cause some extra volatility as orders are filled by banks.
The GBPUSD is already surging to the upside. USDCHF as just push below its 200 hour moving average at 0.92086. The EURUSD and USDJPY are also on the move in the dollar selling direction.
The GBP/USD pair gained traction in the early American session and climbed to a fresh daily high of 1.2921. As of writing, the pair was up 0.4% on the day at 1.2913.
A fresh USD selloff seems to be fueling the pair’s rally. In the absence of significant fundamental drivers, the sharp drop witnessed in the US Dollar Index (DXY) suggests that month-end flows are weighing on the greenback. At the moment, the DXY is flat on the day at 93.89.
Earlier in the day, the data from the US showed that employment in the private sector rose by 749,000 in September and the economic activity in the second quarter contracted by 31.4%. Both of these figures came in better than analysts’ estimates and helped market sentiment turn positive.
Additionally, US Treasury Secretary Mnuchin noted that he was optimistic about reaching a coronavirus aid deal with Democrats. Boosted by the upbeat data and Mnuchin’s remarks, Wall Street’s main indexes gained traction and put additional weight on the safe-haven greenback’s shoulders. The S&P 500 Index is currently gaining more than 1% at 3,371.
On the other hand, British Prime Minister Boris Johnson acknowledged earlier in the day that the coronavirus is a “serious and growing problem” in the UK. If COVID-19 cases continue to rise in the UK, the GBP could struggle to preserve its strength against its rivals.
The AUD/NZD is rising for the third day in a row, recovering after falling to the lowest level in almost two months on Friday at 1.0714. On Wednesday it climbed to the 1.0850 area and above the 20-day moving average (1.0835) for the first time since late August.
Despite gaining more than a hundred pips during the current week, AUD/NZD continues to trade in a descendant channel. The trendline resistance stands at 1.0860, and a few pips below at 1.0840, there is a horizontal resistance. So a break above the 1.0840/60 area would negate the bearish bias, pointing to some consolidation at higher levels or to a resumption of the bullish trend.
A failure around current levels should favor another test of the 1.0720 area (September lows). An interim support is seen at 1.0775/80.