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AFEX Market Watch - 7th August 2020

What Happened Yesterday
• On Wednesday AUDUSD traded at an eighteen month high of 0.7241 before falling away in the last hour of New York trading. Last night the Aussie sealed the deal, recording its highest close, 0.7236, since last February. Technology stocks surged leading the Nasdaq to its first ever close above 11,000 and iron ore closed above $120 a ton. Volatility hit a new six month low.

• Having risen for the prior two weeks, US unemployment claims numbers have fallen by more than expected to the lowest level since March 19th. The 1,186m people that made jobless claims is almost 16% below the estimate but is still six times the average number pre-Covid. Meanwhile Federal Reserve member Robert Kaplan said more help is required for small businesses.

• The Bank of England held interest rates at 0.1% and offered a mixed outlook for Britain’s economy. Having previously forecast a swift rebound from the pandemic, the bank now expects GDP to remain below its pre-pandemic levels until the end of 2021. But the 9.5% slump in GDP it expects this year is less severe than its earlier prediction of 14%.

Major Risk Event
The great Covid disconnect continues. New daily cases continue to grow and the death rate is swinging higher again. The much touted V-shaped recovery has failed to materialise and job losses have spread into more sectors of the labour force. Yet risk appetite remains rampant with share markets hitting new highs and AUD soaring. When will financial markets be hit by the 2nd wave?

Today’s Agenda
• US unemployment peaked at 14.7% in April and has since fallen slowly but steadily. Data released tonight should reveal that the jobless rate fell from 11.1% in June to 10.5% in July. But lockdowns have resumed in the sunbelt states as cases have resurged meaning more jobs there would have gone. The recovery in the northeast is likely not enough to offset those losses.

• The RBA Monetary Policy Statement is published at 11:30am. This quarterly report contains the central forecasts for employment, inflation and economic growth for the next few years. These forecasts are influential to future interest rate expectations and will therefore influence the Australian dollar itself through long term bond yield level changes.

• The Customs General Administration of China releases trade balance numbers at 1pm. Of key interest to us will be the volumes of commodity imports, particularly from Australia. Exports to European and American markets will also be keenly followed. Iron ore and gold prices have remained high due to strong demand from China and this is keeping the Aussie supported.

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