10th February 2021 - AUD/USD testing key downtrend after convincingly reclaiming 0.7700 level

Good Morning,

Market Headlines

A more cautious tone crept into markets, with equities stalling at elevated levels. The USD fell against most major rivals, once again moving alongside US Treasury yields. Government bond yields eased further after peaking early on Monday at fresh multi-month highs, as markets await for news related to a new US stimulus package.

The EUR/USD pair neared 1.2120, while GBP/USD surged past 1.3800, its highest since April 2018. The movement was purely driven by easing US Treasury yields, weighing on the greenback. Commodities, Brent crude oil futures rose 0.7% to $61.00 – a fresh 12-month high, copper rose 1.2%, and gold rose 0.3%.

Overnight Currency Ranges

AUD/USD: 0.7707 – 0.7740

EUR/USD: 1.2068 – 1.2120

GBP/USD: 1.3762 – 1.3816

USD/JPY: 104.50 – 104.92

USD/CAD: 1.2695 – 1.2765

NZD/USD: 0.7216 – 0.7254 (1 month high)

AUD/JPY: 80.61 – 81.06

AUD/NZD: 1.0654 – 1.0687

AUD Thoughts

Quiet day ahead is expected with attentions shifting towards China where we get inflation data before the start of their Lunar New Year celebrations. A recent lift in the CPI has likely been a result of increases in food prices; the market expects this momentum will abate in January (market f/c: 0.0%yr). Meanwhile, the January PPI is set to pick up to 0.3%yr.

The US’s headline inflation monthly figure will also be released tonight, which should be boosted by the ~8% rise in gasoline prices over the month. The core measure has been weighed down in recent months by shelter and health care inflation. Any shift in this dynamic in January’s figures could impact market measures of inflation compensation.

AUD traded in a 0.7707/40 range over the last 24 hours with more meaningful topside resistance still expected ahead of 0.7820 while demand had grown on the back of the commodity strength and should materialise at 0.7680 and again at 0.7620.

Event Risk Data Today

Australia: The Westpac-MI Consumer Sentiment Index fell 4.5% in January, impacted by a partial tightening in Covid restrictions following clusters in parts of Sydney. The February update will capture restrictions in Perth and Melbourne on virus concerns; positive news around the housing market; and the extension of the RBA’s policy stimulus.

China: A recent lift in the CPI has likely been a result of increases in food prices; the market expects this momentum will abate in January (market f/c: 0.0%yr). Meanwhile, the January PPI is set to pick up to 0.3%yr.

UK: GDP has come under serious pressure in Q4 with the economy returning to lockdown on a surge in new cases. However, monthly GDP figures throughout the quarter were not as bad as initially feared, and the market is looking for a small expansion of 0.5%qtr (-8.1%yr).

US: The CPI has picked up ahead of the January release, but remains firmly below target (market f/c: 0.3%, 1.5%yr). January’s monthly budget statement is set to show that the deficit widened further on the ongoing efforts to support the economy (market f/c: -$150bn). Finally, Fed Chair Powell will speak to the Economic Club of New York (06:00 AEDT).

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