US equities fell amid mixed messages from the US fiscal stimulus talks. The S&P500 is currently down 0.9%, and risk-sensitive currencies are slightly lower, while bond yields were rangebound. Commodities, Brent crude oil futures rose 0.4% to $49.00, copper rose 0.4%, iron ore rose 1.0% to $150.15 – a fresh eight-year high, and gold fell 1.9%.
AUD/USD: 0.7424 – 0.7485 (2 year high)
EUR/USD: 1.2058 – 1.2147
GBP/USD: 1.3354 – 1.3476
USD/JPY: 104.05 – 104.41
USD/CAD: 1.2770 – 1.2833
NZD/USD: 0.7011 – 0.7093
AUD/JPY: 77.49 – 77.94
AUD/NZD: 1.0536 – 1.0592
The AUD/USD pair climbed to its highest level since July 2018 at 0.7485 yesterday but struggled to preserve its bullish momentum in the second half of the day.
Looking forward it’s a relatively quiet day ahead on the data front with most investor interest still centred on the seemingly endless Brexit negotiations and the ongoing US fiscal stimulus discussions.
To Europe, in its last policy decision, the ECB took the unusual step of pre-committing to “recalibrate its instruments” at the December meeting. Further ECB commentary have now cemented market expectations around an envelope and time extension of the PEPP and further easing of financing conditions via the PEPP. Based on economists’ analysis, the base case appears to be for a EUR500bn increase in the PEPP envelope to EUR1.85tn, enabling purchases to continue at their current pace for another 6 months until end-2021. A six month extension of the TLTRO discounted-rate window is also largely expected, as well as easing of collateral requirements. With expectations so cemented, binary risk to the EUR exist.
The AUD/USD cleared significant selling interest overnight on its way to a high of 0.7485 while further offers are likely ahead of 0.7500 and again at 0.7520. Demand should slow any dip to the 0.7350/70 region.
Event Risk Data Today
Australia: Melbourne Institute inflation expectations have picked up from recent lows ahead of the December update. The RBA Bulletin will showcase the Bank’s latest research.
New Zealand: Markets are expecting a modest 0.3% pull back in November retail card spending. That reflects that much of the rise in spending last month was related to durables spending, which can be lumpy on a month to month basis. A result in line with our forecast would still leave spending at firm levels.
China: M2 money supply growth is expected to print at 10.5%yr in November, and new loans will reflect the robust recovery of the credit market (market f/c: CNY1450bn). The November update of foreign investment, which has been running well above pre-COVID levels, will also be published.
Euro Area: The ECB will announce its December monetary policy decision. The focus will be on the PEPP and the TLTRO, which have been flagged as the choice instruments of the policy recalibration. The Bank will also provide its latest economic forecasts, including the first estimates of 2023.
US: The November CPI is set to print precariously close to the deflation threshold, and will remain an ongoing concern for the Fed (market f/c: 0.1%). Following this, we will receive a clearer signal of initial jobless claims in the wake of the Thanksgiving holiday (market f/c: 725 k). The monthly budget statement should narrow, but will remain elevated (market f/c: -$200bn).