US/China going “well”
Risk assets have steadied in NY on the back of Trump’s US/China comments which highlighted that “the deal with China is coming along very well”. Larry Kudlow added that 15% tariffs, recently imposed on Sep. 1, could be rolled back if things keep going in the right direction. There was trepidation early however as news broke that China were seeking US$2.4bn in retaliatory sanctions for non-compliance by the US on a WTO ruling made back when Obama was in office. While markets remain sensitive to fleeting headlines, we remain hesitant to trade conflicting signals about the state of US/China trade relations and instead look to Trump and Xi’s widely-anticipated APEC summit “signing of phase 1” in Chile for more meaningful indication of the path forward.
NZDUSD has managed to keep its head above 0.64 and looks towards 0.6444, the next major resistance level. ASX Futures trades around 6,638 with the next level of major support around 6,560, the 200D-SMA. Having edged higher overnight, ASX Cash is likely to follow and be 20pts higher at the open. Note that liquidity will also look lighter in USDJPY as local markets catch the Emperor’s Coronation, a national holiday.
Brexit on a knife edge
A bid to win approval for a second Brexit vote was cut short by the House of Commons’ Speaker, John Bercow, explaining that “[Monday’s] motion is in substance the same as Saturday’s [Brexit] motion”. Early signs suggest that PM Boris Johnson will therefore try again on Tuesday though the decision will fall on John Bercow and could be scuppered yet again. Some have conjectured that there is a majority support for Johnson’s Brexit deal from those who voted for the Letwin Amendment, which was pushed through as an insurance policy against a potential No-deal Brexit scenario on Oct-31.
Broader risk sentiment seems to be supported with “deal” probabilities edging higher. AUDUSD trades at 0.6866, 23pips under the 0.6889 neckline of a potential double bottom formation that started in late July. A breach of the neckline coupled with renewed US/China trade confidence, Brexit optimism and better Aussie labour dynamics could see AUDUSD target 0.7079.
Canada in focus
Canada heads to the election polls this evening and appears increasingly likely to form a new minority government by day’s end. We think USDCAD remains less fragile than most would expect given Canada’s fiscal or economic outlook isn’t set to radically alter should either Liberals, Conservatives or neither win majority. Though, a Liberals minority with Greens is likely to see less support for the Trans-mountain pipeline and therefore caps forward Canadian oil production, its number one export. The latest poll results show Liberals and Conservatives at evens. 1.3 forms the next major support level for USDCAD; a breach could see potential for a move down to 1.26.
An event that markets will be closely watching is Canadian Core Retail Sales due out at 11.30pm AEDT, forecast for a 0.1% gain. While this is important for the BoC’s economic outlook, it’s unlikely to significantly alter the BoC’s decision leading into October given the recent spate of positive data, in particular, the solid jobs report seen two weeks prior. We think the BoC’s relative hawkishness and firmer domestic standing bodes well for bearish JPYCAD bets in the near-term.
