Aussie dollar rises with yields, ignores data

3-year yield at 3-week high

The more upbeat tone of RBA Governor Lowe’s speech yesterday has seen the Australian yield curve move higher, with the 3-year yield rising for a third consecutive day to reach 0.755%, the highest since January 16. The higher yields have prompted a bid tone for the Australian dollar, which is 0.11% higher versus the US dollar and 0.15% versus the Japanese yen.

AUD/JPY is testing the 100-day moving average at 74.31, which has remained intact on a closing basis since January 24. AUD/USD has a bit further to go to test its 100-day moving average, which is at 0.6847 today.

AUD/USD Daily Chart

Source: OANDA fxTrade

Australian data disappoints

The gains for the Australian dollar run contrary to the economic data, with three sets of numbers coming in below forecast this morning. First off, NAB’s business confidence index came in a -1 q/q in the fourth quarter, the same as Q3 but disappointing optimists who had expected an uptick to +3.

Next up was retail sales data for December, which fell 0.5% m/m in the month, the opposite of the revised 1.0% increase in November, and a deeper contraction than the -0.2% economists had expected, according to the surveys.

And finally, the trade numbers for December showed a shrinking surplus as imports rebounded. Imports increased 2.0% from -2.8% in November, while exports rose 1.0%, almost the same pace as the previous month’s +1.3%. As a result, the trade surplus narrowed to A$5.22 billion from A$5.52 billion in November.

Coronavirus update

The latest data on the coronavirus showed a spike in numbers overnight to 28,209 cases currently, with 565 associated deaths. The deaths remain primarily in mainland China, with still the one in the Philippines and one in Hong Kong the only reported deaths outside the Chinese borders (Source: John Hopkins University).

We are approaching the time when the 14-day period of the first city lockdowns expires and many are hoping to see a tailing off in the number of new cases and deaths to prove that containment and isolation is helping to curb the virus’s spread.

Fitch Ratings came out and stated the obvious early this morning by highlighting that the coronavirus outbreak would damp China’s economic growth this year. It stated that the extent of the impact remains uncertain, depending on the duration and intensity of the health crisis, and so did not give any revised forecasts.

European growth forecasts on tap

The European Commission is scheduled to release its economic growth forecasts for the region today, and those will likely determine the direction for the Euro in the near term. Ahead of the release we will hear speeches from ECB’s Lagarde and De Guindos. Let’s see if they are all on the same wavelength.

Q4 unit labour costs and nonfarm productivity fill up the US calendar along with a speech from Fed’s Kaplan.