For the full details, download the full report: Australian Markets Weekly 17 September 2018

• The AUD opens the week at 0.7150, having tested below 0.71 in the first half of last week, but rallied later in the week on short covering of AUD positions, a move triggered as the USD receded as the US CPI undershot expectations. A renewed focus on US-China trade and tariffs over the weekend however has stymied this nascent recovery in the AUD.
• Our views on the Australian dollar and other currencies are updated each fortnight in NAB’s Global FX Strategist (targeted for sophisticated investors), with the latest version out today, and monthly in our Corporate FX Monthly, for less sophisticated currency exposure managers. To receive either publication please Ask the FX Strategists.
• AUD/USD’s bounce from sub-0.71 comes in conjunction with a small-scale recovery in Emerging Markets. Positioning suggests scope for a bigger recovery, but downside risks from trade concerns/EM remain significant. We maintain our end-2018 and 2019 forecasts near 0.75, but a 0.70-0.75 range is looking more likely than 0.75+.
• It’s a quieter week ahead for key data here and offshore, the focus more likely on geopolitics, notably US-China tariffs, emerging market strains and Brexit news.
• The market is now waiting to hear an announcement from the White House of tariffs on an additional $200b of Chinese imports, weekend press tipping an announcement Monday or Tuesday. As the proposed 10% tariff is lower than the earlier-mooted 25% rate, to an extent this is supportive for risk sentiment.
• As a dampener to the mooted lower tariff rate, the press is reporting that moves by US Treasury Secretary Steve Mnuchin to invite his Chinese counterpart Liu He to attend fresh trade talks in Washington appear to have fallen on deaf ears.
• Whether the market can gain any more insight from tomorrow’s RBA Board Minutes for September into the thinking and risks around the expected gradual progress toward a return of inflation into the target range remains to be seen. It’s unlikely, the RBA Governor having already given great insight into the Board’s discussion at his remarks to the post-Board dinner in Perth.
• Chris Kent, RBA Assistant Governor (Financial Markets) is speaking on “Money Creation” on Wednesday. After the glut of economic reports, there’s a dearth of local data this week, with only the Statistician’s June quarter House Prices report published. This is no longer focused on by the market with CoreLogic having already released house prices for August.
• Offshore, NZ’s GDP on Thursday is expected to be reasonable at 0.6% q/q, if lower than consensus. The Bank of Japan meet, likely continuing its emphasis on very accommodative monetary policy, while the South and North Korean leaders are set to meet Tuesday. There are some key EU meetings on Brexit this week.

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