Australian Dollar, Chinese GDP Data, Australia Employment Statistics, Coronavirus Update, US-China Tensions – TALKING POINTS
- Australian Dollar volatility may pick up ahead of local jobs report, China GDP statistics
- China tension with Australia, US overshadowed by growing hope for coronavirus vaccine
- AUD/USD congestive interim may be coming to an end; directional bias may be revealed
Stocks on Wall Street ended on another happy note with the Dow Jones, S&P 500 and Nasdaq indices closing 0.85, 0.91 and 0.59 percent higher, respectively. The S&P 500’s ascent was carried by Industrials, specifically Transportation under the Airlines subcomponent. This category had stocks like American Airlines Group and United Airlines Holding jump as high as 16.16 and 14.59 percent, respectively.
The sectoral breakdown suggests the move reflected hopes that containment of the Covid-19 pandemic would come sooner rather than later. That may have come from a seemingly growing sense that a successful coronavirus vaccine is close at hand.
An extension of the relief rally following US President Donald Trump’s briefing on China yesterday may be another source of optimism. His anti-China rhetoric and policies that followed appeared to be less aggressive than what markets had expected, and this in turned helped boost sentiment.
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Buoyancy around that development seems to be overshadowing concern about rising Sino-US geopolitical tensions. Foreign exchange markets reflected a risk-on tilt with the cycle-sensitive Australian and New Zealand Dollars along with the petroleum-linked Norwegian Krone outperforming their G10 peers. The anti-risk Japanese Yen and Swiss Franc suffered with the haven-linked US Dollar.
The Canadian Dollar rose alongside other commodity-linked currencies following the Bank of Canada interest rate decision. Officials held the benchmark interest rate at 0.25 percent and said that economic activity has notably picked up following relaxed lockdown measures. The BOC said the economy likely bottomed out in April but will keep interest rates at their current levels until its inflation target is hit.
Thursday’s Asia-Pacific Trading Session
The Australian Dollar will likely be the most highly-watched and volatile currency ahead with local employment and Chinese Q2 GDP data on deck. As of July 15, right under the Norwegian Krone, AUD has the highest reading for implied volatility at 9.35, with its cycle-sensitive cousin NZD below it at 9.20. In Australia, officials are anticipating a significant improvement in employment statistics:
Participation Rate for JuneEstimate: 63.3%Prior: 62.9%
Unemployment Rate for JuneEstimate: 7.3%Prior: 7.1%
Employment change for JuneEstimate: 100.0kPrior: -227.7k
Signs of a recovery there could catapult the Australian Dollar higher amid signs of modest economic stabilization despite a spike of coronavirus cases in the state of Victoria as well as pockets in the United States. Better-than-expected jobs figures could also reduce the urgency of additional monetary stimulus. At its most recent policy-setting meeting, officials said in a statement that:
“The Bank is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS. The yield target will remain in place until progress is being made towards the goals for full employment and inflation” – RBA.
Shortly after, China – Australia’s largest trading partner and the primary importer of its iron ore exports – will be releasing GDP data for Q2. Sino-Australia tensions have been rising and initially sent a chill up the spine of AUD traders. However, those geopolitical strains appear to be subordinate to the larger fundamental theme of the coronavirus and medical metrics that follow. Here are the expected figures for Chinese data:
GDP SA QoQEstimate: 9.6%Prior: -9.8%
GDP YoYEstimate: 2.4%Prior: -6.8%
GDP YTD YoYEstimate: -2.4%Prior: -6.8%
Other key statistics to be released include industrial production and retail sales data. Signs of recovery in the Asian giant’s growth trajectory could amplify AUD’s gains – or minimize its losses if unemployment data preceding it was disappointing. Despite originating out of China, the coronavirus will leave the regional powerhouse better off than most of its peers according to the IMF.
“We are projecting that only a very small number of economies in Asia and the Pacific will actually grow this year, including China by 1.0 percent” – Speech on the Global and Asia Economic Outlook.
“The cumulative hit to GDP growth over 2020–21 for emerging market and developing economies, excluding China, is expected to exceed that in advanced economies” – IMF Chief Economist Gita Gopinath
AUD/USD has been stubbornly trading mostly within a trend-defining resistance range between 0.6911 and 0.7018. The reluctance to climb above the upper layer but hesitation to capitulate suggests a cautious optimism in the pair’s upside potential. The upcoming data points may be the catalyst AUD/USD has been waiting to act on, and could consequently determine the pair’s trajectory in the short to medium term.
AUD/USD – Daily Chart
AUD/USD chart created using TradingView
— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter