Thursday, September 3, 2020

Dismal Economic Data Proves A Setback for AUD/USD

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News shaping
the markets today

     

What’s happening: The Australian dollar tumbled versus the greenback after the country reported a record decline in GDP for the second quarter.

What happened: Government efforts to contain the covid-19 pandemic pushed the Australian economy into its first recession in three decades.

Although investors remained positive about the Australian government providing support to the economy, data released today dented market sentiment, extending losses for the Aussie.

Why it matters: Selling pressure for the Aussie gathered pace after Australia reported an economic contraction for the second quarter. The GDP decline was already expected, with economic activity coming to a standstill following the imposition of lockdowns to contain the coronavirus from spreading. However, the contraction was much larger than what markets had expected.

Australia’s economy shrank by 7% on quarter in the three months ending June 30, versus a 0.3% decline in the previous quarter. Analysts had projected a contraction of 5.9% for the quarter.

After falling significantly in the previous session due to a strengthening US dollar, the Aussie continued to tumble this morning, as investors focused on the dismal economic reports.

Australia also recorded its lowest trade surplus since February, at A$4.61 billion in July, versus the previous month’s A$8.15 billion. Exports of goods and services from Australia fell 4% to A$34.49 billion, hitting its lowest level since April 2018.

The Commonwealth Bank Services PMI also declined to 49 in August, versus a three-year high of 58.2 in July. Composite PMI dipped to 49.4 in August, from July’s reading of 57.8.

The AUD/USD declined to close yesterday’s session at $0.7338, and continued to trade lower by 0.5% to $0.7304 in today’s European session.

What to watch: Traders await retail sales report from Australia, which is due for release tomorrow. The country’s retail sales, which grew 3.3% in June, are expected to increase 2.7% in July. Investors will continue to monitor covid-19 numbers, with the second wave of virus affecting the state of Victoria.

Markets will also keep an eye on various economic reports from the US, including the major jobs report, scheduled for release tomorrow.

The Markets Today

     

US stocks will be in focus today, ahead of a basket of economic data from the country.

Context: US equity indices surged on Wednesday, settling in record territory with investor sentiment being lifted by progress in the development of covid-19 vaccines.

Details: Markets shrugged off mixed economic reports released yesterday, which included downbeat ADP (Automatic Data Processing) figures for private sector jobs.

The ADP reported the addition of 428,000 jobs in private sector during August, significantly missing the consensus estimates of 900,000 job creations.

Some economic reports were positive, lending support to market sentiment. US factory orders rose for the third straight month, by 6.4% in July, while the Federal Reserve’s Beige Book showed the country’s economy had expanded in August.

Investors continued to invest in blue-chip technology stocks and shares of companies supporting remote working trends.

Vera Bradley’s shares spiked around 32% after the retailer delivered a surprise profit for the latest quarter. Shares of Guess Inc jumped around 12% after the company reported better-than-expected quarterly earnings. Macy’s stock gained as well, after the department store chain posted a narrower-than-expected quarterly loss.

The Dow Jones index jumped 454.84 points to close at 29,100.50 on Wednesday, just short of its closing record of 29,551.42 reached on February 12.

The S&P 500 and Nasdaq 100 continued to crush their previous records. The S&P 500 gained 1.5% to reach 3,580.84, notching its 22nd record settlement for the year. The Nasdaq 100 added 116.78 points to settle at 12,056.44, marking its 43rd record close this year.

What to watch: Investors await reports on balance of trade, unit labour costs, labour productivity, initial jobless claims, services PMI, composite PMI, and ISM non-manufacturing PMI from the US.

The US trade deficit is expected to widen to $58 billion in July, from $50.7 billion in June. Unit labour costs are expected to increase 12.1% in the second quarter, while labour productivity is estimated to rise 7.5%.

Initial jobless claims are expected to decline to 950,000 in the latest week, from 1.006 million in the week ending August 22. Economists expect the IHS Markit services PMI to improve to 54.8 in August, from July’s reading of 50.0. Composite PMI is estimated at 54.7 in August, while the ISM non-manufacturing PMI is expected to slip to 57.

Markets will continue to access the covid-19 numbers, with total cases exceeding 6.1 million in the US.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 0.7%, 1.3% and 1%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey's gross foreign exchange reserves, Brazil's industrial production, services PMI and composite PMI, Canada’s balance of trade as well as the US Challenger job cuts and EIA’s natural gas stockpiles.