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Antipodes Action Overnight; Don’t Dream It’s Over?

Prepared by Jeff Halley, Senior Market Analyst

 

Another central banker has “blinked” with the RBA Governor Lowe shifting to a neutral stance joining the Federal Reserve and ECB. We can expect more of the same from the Bank of England (BOE) this evening. Governor Carney has been quite vocally Brexit’s Angel of Death and an uber-dove for quite some time, but with central banks globally shifting policy stance tonight’s BOE rate decision and Mr Carney’s missives could have a real impact on Sterling.

Globally, central banks are in a much more unfavourable position to provide the sugar-rush that markets have become addicted to since the global financial crisis (GFC). The ECB, BOE, RBNZ and RBA are all still at record low levels of interest rates and the Fed’s headlong rush to unwind quantitative easing and hike rates, to put some easing bullets in the gun for a rainy day, appears to have been cut short. A global downturn, should it occur this year, means the central banks won’t be able to steal future growth to keep the lights on today, their go-to strategy since the GFC. It’s no wonder the millennials of today are so angry.

Climbing down off my soapbox; markets consolidated overnight in the U.S. with the USD outperforming following weak data from Germany. Singapore is back from holiday today, but China, Hong Kong, Taiwan and South Korea continue their Lunar New Year, implying that trading will continue its muted theme in Asia. That said, there have been fireworks in AUD and NZD today which should remain the centre of attention for the session.

 

FX

Both AUD and Kiwi have been taken out back and shot overnight. The AUD collapsed 1.60% to 0.7105 on Lowe’s dovish stance and concerns about the global economy along with wilting house prices. AUD is a high beta currency to world trade and China. With another impending shutdown in the U.S. and US-China trade talks resuming next week, the lucky country will be looking anything but in the short-term. Traders will be nervously eyeing crucial support at 0.7070 with nothing but a black hole on the charts after that.

The NZD collapsed by 1.70% to 0.6770 this morning on weak employment data. Slowing jobs growth and a high beta to China as well means the charmed run of the Goldilocks economy may be over for now. Support lies at 0.6705 after which the technical picture looks ominous.

NZD/USD Daily Chart

Source: OANDA fxTrade

 

With ridiculously overpriced housing markets, combined with high levels of consumer debt, Australia and New Zealand are my leading candidates for a significant asset price shakeout following ten years of easing by central banks since the GFC. They won’t be the last.

 

Stocks

Not a lot to say here overnight with markets consolidating their recent gains as the State of the Union passed without incident. The Lunar New Year holidays will ensure that trading remains subdued in Asian markets, with the attention on Australia and New Zealand. Traders will be looking to see if the FX ructions overflow onto stock markets there.

 

Gold

Gold fell to USD$1,305 overnight as the greenback strengthened across the board. The geopolitical scene is going quiet, for now, which has seen one of gold’s support pillars erode as profit-taking has set in. The situation is unlikely to stay calm though, and support in the 1300.00 region looks secure for now.

 

 

Oil

Oil sold initially on a stronger dollar. But both WTI and Brent rallied to finish slightly higher at $53.80 and $62.60 a barrel. Lower than expected crude inventory number along with high OPEC production cut compliance rescued the black gold, and oil overall continues to consolidate at these levels.