November 20, 2019

Markets Today: RBA considered a cut

The markets are still waiting for developments on the US China trade talks.

Today’s podcast


  • US-China impasse over tariff rollback continues; Trump threatens more tariffs if deal not reached
  • Bonds rally with US 10yr yields -3.3bps to 1.78%, though no specific driver apart from sentiment
  • Oil prices fall sharply: WTI -3.3% to $55.16 and Brent -2.6% to $60.80; big inventory build expected
  • AUD shrugs off dovish RBA Minutes; McCrann states RBA is still in assessment mode until Feb
  • Coming up today: JN Trade Balance, CH Loan Prime Rate, FOMC Minutes, Canada CPI

It was another night of modest market moves with focus continuing on prospects for an interim phase one trade deal by the end of the year. President Trump again warned that “If we don’t make a deal with China, I’ll just raise the tariffs even higher”, while the editor of the Global Times (seen close to Beijing) tweets Trump was wrong if he thought the Chinese economy was “crumbling” and that this would lead China to make concessions. Either way the shape of a prospective US-China deal continues to be determined, inspiration for today’s song title “Shape of You” by Ed Sheeran.

In terms of market moves

The biggest move was in oil with WTI -3.3% to $55.16 with surveys suggesting a build in oil inventories. Equities in contrast saw only modest moves with the S&P500 +0.1%, while bonds rallied with US 10yr yields -3.1bps to 1.78%. In FX the AUD fully reversed the initial fall on the RBA Minutes to end +0.1% to 0.6826 with McCrann overnight downplaying the significance of the Minutes and emphasising the RBA is still in assessment mode until February. Other FX moves were modest apart from GBP which fell -0.4% to 1.2913 and USD/CAD which rose 0.5% on a dovish Bank of Canada comments. The USD (DXY) was little changed at 97.86 with EUR and USD/Yen are unchanged.

First to US-China news

Bloomberg reports that US and Chinese negotiators have returned to the text of the aborted deal in May and that China wants all tariffs imposed after May to be removed immediately and then tariffs before that to be lifted gradually. Disagreement also continues on the magnitude of Chinese agricultural purchases. Nevertheless, talks are still being categorised as “constructive”, though details on the timing of a possible deal have yet to emerge. The developments had little impact on markets, suggesting a degree of fatigue on endless trade headlines.

The AUD had an eventual 24 hours, initially falling -0.3% on dovish RBA Minutes and then more than fully reversing to end +0.1% to 0.6826. The RBA Minutes were seen to be dovish with the RBA Board having agreed that a case could be made to ease monetary policy at this meeting”, but that they decided “the most appropriate approach would be to maintain the current stance of monetary policy and to make another full assessment once more evidence of the effects of the earlier monetary easing had become available.” Superficially, that should increase the probability of a move in December, though media commentators known to be linked into Martin Place downplayed the prospect.

The Herald Sun’s Terry McCrann states the RBA is in assessment mode and that “it will leave the rate unchanged again in December; and it will then be on to February(see Herald Sun for details). McCrann also notes that there is “concern inside the RBA that a further rate cut could be at best pointless”, though key to that will be the RBA’s assessment of the impact prior easing which is being felt in house prices, household cash flow and the exchange rate. NAB continues to expect the next rate cut to occur in February, though we think the weakness in the economy warrants faster action by both the RBA and the government. On the later, PM Morrison has again pushed back on near-term stimulus with spending sufficient for now and emphasising the need to protect the budget’s return to surplus (see AFR for details).

The other big FX mover overnight was CAD with USD/CAD +0.5% to 1.3266 on dovish Bank of Canada commentary. Deputy Governor Wilkins said the Bank had “room for manoeuvre” with interest rates, implying a bias to ease. Note Governor Poloz is due to Speak on Thursday.

Bonds rallied with US 10yr yields -3.1bps to 1.78%. There was no specific driver apart from the ongoing impasse over trade. The Fed’s Williams also spoke overnight and emphasised that the Fed overall thinks “…we have monetary policy in the right place. The key thing is we’re not locked into any specific decision” and that he views “the economy is in a very good place”.

Equities in contrast were little moved with the S&P500 -0.0% to 3,122. Overnight earnings reports from a few US retailers disappointed, though this has been outweighed by gains in health care and IT stocks.

Finally oil prices fell sharply with WTI -3.3% to $55.16. Official oil inventory data is released today with surveys suggesting a sizeable build of 1.5m barrels, while optimism over a US-China trade deal has faded over recent days.

Coming up

A very quiet data head both domestically and internationally. There is no top-tier data scheduled for Australia, while Japan’s Trade balance and China’s Loan Prime Rate are unlikely to shift markets. Ditto for the FOMC Minutes, while Canada has October CPI figures.

  • AU: nothing of note
  • JN: Japan Trade Balance (8.50am local, 10.50am AEDT): Trade balance is expected to rise to ¥2248.1bn surplus with a sharp -15.2% y/y decline  in imports offsetting a -7.5% y/y fall in exports.
  • CH: Loan Prime Rate (9.30am local, 12.30pm AEDT): China’s new loan prime rate is expected to be unchanged at 4.20%
  • EZ: Financial Stability Review (10.00am local, 8.00pm AEDT):
  • US: FOMC Minutes (2.00pm local, 6.00am local):
  • US: Housing Starts/Permits (8.30am local, 12.30am AEDT):
  • CA: CPI (8.30am local, 12.30am AEDT): Headlined CPI  is expected to be 1.9% y/y, whole Core Trimmed is expected to be 2.1%. With BoC’s Wilkins indicating a dovish bias, any miss would likely see the probability of a rate cut increase.

For further FX, Interest rate and Commodities information visit

The AUD in November 2023

The AUD in November 2023

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The AUD in November AUD/USD returned to ‘normal’ levels of monthly volatility in November.

The AUD in November 2023