10th February 2022 - AUD/USD climbs steadily towards 0.7200 ahead of US inflation report

Market Headlines

US equities rose, the S&P500 currently up 1.2%, while the US dollar and bond yields fell slightly. The US dollar index is down 0.2% on the day. EUR rose from 1.1403 to 1.1448. USD/JPY ranged between 115.32 and 115.53. AUD rose from 0.7146 to 0.7195. NZD rose from 0.6645 to 0.6698. AUD/NZD fell from 1.0767 to 1.0731.

FOMC member Bostic reaffirmed his bias for 3 or 4 hikes in 2022 and an early start to balance sheet reduction. He thought inflation would ease to 3% by year end. Mester said: “I don’t think there is any compelling case to start with a 50-basis-point move”. ECB member Schnabel highlighted the risks of higher inflation for longer than anticipated, with the inflation profile remaining highly uncertain. However, the ECB would be gradual and data-dependent in its policy normalisation (as stated by Villeroy the previous day). BoE Chief Economist Pill delivered a speech in which he stressed his bias for gradual and measured policy adjustment and the need to contain “market expectations of aggressive activism”.

Commodities, Brent crude oil futures rose 0.3% to $91, copper rose 3.1%, gold rose 0.5%, and iron ore fell 1.4% to $147.

Overnight Currency Range

AUD/USD 0.7142 0.7194

EUR/USD 1.1402 1.1448

GBP/USD 1.3530 1.3590

USD/JPY 115.32 115.69

NZD/USD 0.6645 0.6697

USD/CAD 1.2665 1.2715

USD/CNH 6.3605 6.3699

AUD/JPY 82.41 83.05

AUD/NZD 1.0731 1.0765

AUD Thoughts

The AUD/USD print gains for the third straight day, so far up 1.5% in the week as market players prepare for tonight’s US inflation figures. At the time of writing, the AUD/USD is trading at 0.7185.

Wednesday’s economic docket is light, except for Fed speakers Michelle Bowman and Loretta Mester, leaving AUD/USD’s traders adrift of market sentiment plays or positioning ahead of new financial data. Tonight’s, January’s US Consumer Price Index (CPI) is foreseen at 7.3%. The so-called Core CPI, excluding volatile items like food and energy, is estimated at 5.9%, both readings annually based.

During the week, John Edwards, a former Reserve Bank of Australia (RBA) member, said that the RBA could raise rates four times in quick succession late in 2022. The last week, RBA Governor Philip Lowe “conceded” that tightening of monetary policy was a “plausible scenario.” Nevertheless, he emphasized, as noted in the Statement of Monetary Policy as well and in the press conference, that the beard is prepared to be “patient.”

The AUD/USD is neutral biased, as shown by the daily moving averages (DMAs). At press time, the AUD/USD is trading above the 50-DMA, which sits at 0.7163, but seems far from the 100-DMA at 0.7248, which intersects with a three-month-old downslope trendline around that area. However, a daily close above the 50-DMA would expose 0.7200 as the following resistance level. Once that gives way, then and only then, AUD bulls would challenge the 100-DMA. A breach of the latter would expose the January 13 daily high 8-pips short of the 0.7300 figure.

Event Risk Data Today

Aust: February MI inflation expectations will provide timely insight into consumer views on inflation pressures. The 15 January Weekly Payrolls are expected to fall; a trend usually seen throughout the Christmas/New Year period.

India: The Reserve Bank of India will keep their main policy instrument on hold for now to facilitate the economic recovery (market f/c: 4.0%).

US: Price pressures are set to persist in January, holding the CPI at near 40-year highs (f/c market 0.4%m/m and 7.3%y/y). Meanwhile, initial jobless claims should also remain at a very low level (market f/c: 230k)

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