AUD/USD: risk sentiment weighs on Aussie, commodities soured despite weaker greenback

• AUD/USD has been unable to get above the key 0.7130, yesterday’s R1 level, and has since drifted back to test below the pivot, marking a low of 0.7086 so far.
• AUD/USD lower despite that the DXY has been scaling back its advance on the leader’s board and trend back below the key 95.60/70 region.  

DXY is currently trading down in the 95.40s and the CRB index has yet to capitalise on this breakdown in the dollar. The CRB index has fallen from space on the 201  handle  and down to 198. WTI, a major contributor to the index is bleeding  as economists deem Hurricane Michael a ‘non-event for oil’ production while EIA  lift  forecasts on oil prices. At the same time, risk is not favourable today with the  Dow falling 500 points and the S&P 500 risking its longest losing streak in around 2 years –   The VIX spiked and is sat at 18.32 currently, +2.37, (+14.86%)   – As a result, USD/JPY keeps bleeding and AUD/JPY is dipping its toe in the waters of the supportive pivots having already pierced S1 by some margin with a low of 79.85.  

• Wall Street collapses as trade war fears reemerge on Treasury Secretary Mnuchin’s comments
• S&P500 Technical Analysis: Bulls losing the grip as stocks fall heavily to 2,834.00

Risk factors to be considered

There are a number of risk fundamentals at play and according to the IMF, global financial stability risks rising with trade tensions. This fresh admonishment from the lender of last resort comes after they recently  cut the global growth forecast from 3.9% to 3.7%   – We had   Christine Laggard giving us this heads up last week and it is  the first time any recognised body has been prepared to officially mark the trade tensions as a threat to global growth.  Trump said recently that China is not ready to reach  trade  deal –  Eyes are firmly on China with this regard and CSI 300 index in free fall could be contagious when it comes to global equity performances  into the end of the year – 3,200 is the level to watch and we are not far from it – A break below 3,200 and a subsequent test of the week commencing 10th Sep lows at 3,191 could be menacing for the Aussie, the Yuan and risk in general.  

Day and data ahead

US: September PPI poses downside risk to CPI report – Nomura

Meanwhile, for the rest of this week, the US CPI data is the key focus with one last Fed speaker, Bostic, later today before the release. We will also hear from  RBA’s Assistant gov Ellis later around the same time this afternoon. Domestically we also have consumer inflation  expectations tonight.  

Fed’s Evans: National economy is doing ‘extremely well’

• AtlantaFed GDPNow  up slightly to 4.2%

With respect to the CPI print, analysts at TD Securities said,  “We think rate market risks are skewed more to a disappointment given the move higher in rates in recent days. The curve should reverse its recent steepening move on a stronger print”. Regarding FX, the analysts are neutral on the USD,  “… but will take its cue from the Treasury space… Likely more vulnerable to a data miss given saturated USD longs.” The data is expected  0.2% m/m,  2.4% y/y for the headlined and  0.2% m/m,  2.3% y/y for Core CPI.  

AUD/USD levels

Analysts at Commerzbank note that AUD/USD has recently seen a minor break to a new low:

“This has been accompanied by a TD perfected set up and we note TD support at 0.6995. This was a warning sign and we are now seeing a small rebound near term. The market will find strong resistance at the 55-day moving average at 0.7227 and the 0.7320 2018 channel and remains under pressure. Below 0.6995/75 targets 0.6827 the 2016 low.”