Daily Report: Aussie Tumbles on China Worries

Aussie opened the weak sharply lower and broke 0.9 level against dollar on worries of economic outlook of China. A batch of weak economic data released over the weekend highlighted the risk of steeper slowdown in the economy. Industrial production rose 6.9% yoy in August, comparing to prior month’s 9.0% yoy in expectation of 8.8% yoy. That’s the slowest pace since December 2008 outside out lunar new year periods. Retail sales rose 11.9% yoy in August versus expectation of 12.1% yoy. Fixed asset investment rose 16.5% yoy versus expectation of 16.9% yoy. The concerns also dragged down Asian equities with MSCI Asia Pacific outside Japan index slipped 0.8% to the lowest level since early August.

Elsewhere, dollar stays in tight range against European majors ahead of this week’s FOMC meeting. We expected the Fed would continue to scale back its asset purchases by a further USD 10B to USD 15B whilst acknowledging recent improvements in the economic dataflow. That would set up the end of asset purchases in October meeting. Also, fed policymakers would possibly shift to more hawkish stance, leading to earlier than expected rate hike schedule. In particular, markets will focus on whether Fed would drop “considerable time” from sentence of “maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends”. In that case, it would be a strong signal that Fed is really ready for interest rates normalization soon.

Another key event would be the Scottish referendum on September 18. The latest polling result released by YouGov suggested that 52% of respondents saying they would vote “no” for independence and 48% saying they’ll vote “yes”, following the “yes” vote surpassing the “no” in the prior week. However, the ICM poll for the Sunday Telegraph has the Yes campaign 8% ahead, signaling the fight for Scotland’s future is now neck and neck.

Here are some highlights for the week ahead:

  • Monday: Swiss PPI, Eurozone trade balance, US empire state manufacturing, industrial production
  • Tuesday: RBA minutes; UK CPI, PPI; German ZEW; US PPI, TIC capital flow
  • Wednesday: BoE minutes, UK job; Swiss ZEW; Eurozone CPI; US CPI, NAHB housing index, FOMC rate decision
  • Thursday: New Zealand GDP; Japan trade balance; SNB rate decision; UK retail sales; US housing stats, jobless claims, Philly Fed survey
  • Friday: German PPI; Canada CPI

Daily Pivots: (S1) 0.9011; (P) 0.9060; (R1) 0.9089; More…

AUD/USD drops further to as low as 0.8983 so far today, just inch above mentioned target of 61.8% retracement of 0.8659 to 0.9504 at 0.8982. Intraday bias remains on the downside for the moment. Sustained break of 0.8982 will pave the way for a test on 0.8659 low. On the upside, above 0.9068 minor resistance will turn bias neutral and bring consolidations. But recovery would be limited by 0.9236 resistance and bring another decline.

In the bigger picture, price actions from 1.1079 are viewed as a medium term correction. At this point, we’re still slightly favoring the case that such correction is completed at 0.8659 already, ahead of 50% retracement of 0.6008 to 1.1079 at 0.8544. However, such view is dampened by the fact that AUD/USD failed to sustain above 55 weeks EMA and was rejected from there. Further downside acceleration could extend the correction from 1.1079 through 0.8659 to 0.8544 fibonacci level and below.

AUD/USD 4 Hours Chart

AUD/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:01
GBP
Rightmove House Prices M/M Sep
0.90%

-2.90%

7:15
CHF
Producer Import Prices M/M Aug

0.00%
0.00%

7:15
CHF
Producer Import Prices Y/Y Aug

-1.00%
-0.80%

9:00
EUR
Eurozone Trade Balance (EUR) Jul

15.9B
13.8B

12:30
USD
Empire State Manufacturing Index Sep

15
14.69

13:15
USD
Industrial Production Aug

0.30%
0.40%

13:15
USD
Capacity Utilization Aug

79.20%
79.20%

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