- The Australian dollar eased on Monday as fresh concerns about the global economy resurfaced.
- Chinese exports and imports suffered the largest year-on-year decline since the second half of 2016 in December, raising concern about global demand. Eurozone industrial output also suffered the largest decline in nearly three years in November.
- The movements in the Chinese yuan remain highly influential on those in the Australian dollar.
- Brexit will be in focus today as the UK House of Commons votes on Theresa May’s deal with the EU. The vote is expected to take place late in the session, and is widely expected to fail. The main question is how sever will the defeat be.
The Australian dollar eased on Monday as fresh concerns about the global economy resurfaced.
Here’s the scoreboard at 8am in Sydney on Tuesday.
AUD/USD 0.7197 , -0.0018 , -0.25%
AUD/JPY 77.85 , -0.32 , -0.41%
AUD/CNH 4.8668 , 0 , 0.00%
AUD/EUR 0.6273 , -0.0005 , -0.08%
AUD/GBP 0.5592 , -0.0012 , -0.21%
AUD/NZD 1.0550 , 0.0035 , 0.33%
AUD/CAD 0.9553 , -0.0016 , -0.17%
The main theme of the session was a weak Chinese trade report for December with imports and exports suffering the largest year-ended decline since the second half of 2016, raising renewed concern about the outlook for the global economy .
“The decline in exports is seen to be symptomatic of weaker global demand that transcends the impact of US tariffs, with weaker exports to the Eurozone as well as the US. Weaker imports, meanwhile, are viewed as evidence of an even sharper slowdown in China’s economy,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.
The data saw traders initially flock back to the relative safety of the Japanese yen and US dollar, sending the Chinese yuan and Australian dollar down sharply from the levels seen earlier in the session.
After opening the week at .7215, the AUD/USD fell to as low as .7176 before rebounding towards the close, helped by a a recovery in US stocks and the offshore-traded yuan from the lows struck in early trade.
Reports indicating that Chinese policymakers may look to roll out further stimulus measures to support economic activity in the first half of the year may, at the margin, helped the Aussie’s and yuan’s cause.
Against the crosses, the Aussie also fell against the euro, British pound and Canadian dollar, although the losses were modest.
The resilient performance in the euro came despite data showing eurozone industrial output suffered the largest monthly decline in nearly three years in November. The Canadian dollar also gained despite some big falls in crude oil futures during the session.
The GBP remained volatile ahead of a vote on UK Prime Minister Theresa May’s Brexit deal today.
Turning to the day ahead, the Brexit vote will likely dominate proceedings, especially in the latter parts of the session.
“Sterling should be extremely volatile after May’s Brexit deal is put to a parliamentary vote on Tuesday,” said Macquarie Bank’s FX and Rates strategy team.
“It’s very likely to suffer a landslide defeat, thanks to resistance from the opposition benches, and a mass rebellion within Conservative party ranks.
“At first glance that might sound like bad news for sterling, yet such a resounding defeat is universally expected, and will open doors to many alternative paths, most of which would be good for the pound.
“We expect sterling to trade substantially higher over the next two weeks, and our end-March forecast for GBP/USD remains at 1.33, rising to 1.40 by end of 2019.”
The vote is expected to take place late in the US session, raising the potential for extreme volatility given reduced market liquidity between the close of New York and resumption of trade in Asia.
Before the vote arrives, other highlights on Tuesday include the latest NZIER New Zealand business confidence survey, Japanese machine orders, German GDP, Spanish and French CPI, Eurozone trade along with the Empire State manufacturing index, and producer price inflation from the United States.
On the central bank front, speeches from George, Kashkari and Kaplan from the US Fed, along with ECB President Mario Draghi, are scheduled.
Finally, the fortnightly GDT dairy auction will take place, an event that is often highly influential on the New Zealand dollar.
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