An attack by kamikaze drones at the world's largest oil refinery in Saudi Arabia led to an increase in oil prices by more than 10% since almost half of the Saudi capacities were out of order.
It will take weeks to recover and considerably this event is the largest since the Persian Gulf War in 1990. Nevertheless, the reaction of the markets was rather restrained. Most of Saudi Arabia's crude oil exports go to the United States, China, Japan, and South Korea. All four countries have significant strategic oil reserves that can fill the temporary gap in oil supplies. Globally, oil demand could slow down due to the approaching recession and the aftermath of the trade war, and OPEC + also expressed concern about the oversupply.
Gold is growing slightly at the opening of the trading session on Monday. The Canadian dollar opened trading with a gap but half the gap has been liquidated by 5.00 UTC. Meanwhile, the Japanese Nikkei is gaining by more than 1% but such a reaction is quite expected. Most likely, commodity currencies will not be able to extract significant benefits from the sharp increase in oil prices.
We also need to consider weaker than expected macroeconomic data from China. On Monday morning, it became known that retail sales growth in August slowed down relative to July. The growth of industrial production and investment in the urban economy was also below forecasts. China is gradually slowing its growth, which will affect oil demand. Therefore, the week begins with an increase in tension.
We should expect a reversal in investor sentiment in favor of increased demand for defensive assets.
The manufacturing sector of New Zealand declines for the second month in a row. The last time such a negative trend was observed in 2012.
The new orders sub-index has reached its lowest level since May 2009, which indicates that we should not expect PMI growth in the coming months. For the fourth consecutive month, employment is declining in the sector, which indirectly indicates a forthcoming decline in consumer demand.
Before the publication of final GDP data on Wednesday, forecasts worsen and the increase in the second quarter is expected to slow to 0.4%. Against this background, there is a likelihood of an increase in anti-risk sentiment that puts kiwi is under pressure.
The possible growth of the NZD/USD pair is limited by the resistance of 0.6406 and the chances to go higher to 0.6450 looks weak. It is more likely to decline towards the support of 0.6368 and further develop the downtrend to 0.6268.
The NAB Australia Business Confidence Index fell from 4p to 1p in August and the Westpac Consumer Confidence Index fell from 3.6% to -1.7%. Inflation expectations in September fell from 3.5% to 3.1%.
Household consumption growth slowed down to 1.4% y/y, while the main contribution to this growth was due to an increase in spending on basic necessities. Australian citizens are tightening their belts even tighter and even if it's still a long way to drill new holes in the belts, the trend is obvious.
Australian banks are jointly changing their monetary policy forecasts. In particular, NAB reports in a monthly review that earlier it had expected a rate cut to 0.75% in November and the launch of some monetary stimulus measures. Now, it expects a decrease to 0.5% in February and if the government does not submit a plan for tax incentives, then the rate reduction to 0.25% in the summer of 2020 is excluded with the simultaneous launch of a wide program of unconventional measures.
The fall of Aussie is restrained by a sharp increase in oil prices but even this factor is clearly not enough. The minimum opening week of 0.6367 can be updated in the near future, after which the movement to the support of 0.6267 will begin. A factor in reducing tensions from the resumption of trade negotiations between COIF and China is unlikely to provide long-term support for the Australian dollar.