11 December 2020 - AUD/USD continues upwards march, eyes 0.7550 next


Good Morning,


Market Headlines

US equities were fairly stable amid ongoing stimulus talks, the S&P500 unchanged. Bond yields were also stable, while risk-sensitive currencies rose. The ECB delivered further easing, as expected, while Brexit-related EU-UK trade talks faltered. Commodities: Brent crude oil futures rose 3.2% to $50.40, copper rose 1.9%, iron ore rose 4.9% to $157.45 – a fresh eight-year high, and gold fell 0.3%.


Currency

AUD/USD: 0.7456 – 0.7537 (a fresh 2 ½ year high)

EUR/USD: 1.2081 – 1.2158

GBP/USD: 1.3245 – 1.3362

USD/JPY: 104.22 – 104.58

USD/CAD: 1.2708 – 1.2811

NZD/USD: 0.7023 – 0.7095

AUD/JPY: 77.85 – 78.56

AUD/NZD: 1.0611 – 1.0641


AUD Thoughts

- AUD/USD broke above 0.7500 for the first time since June 2018 earlier on during Thursday's session.

- Surging commodity prices seemed to help, as did a broad softening in USD.


Commodity prices surge

Though not as strong as CAD’s, AUD also has a decent positive correlation with crude oil markets, so the more than 3% upside seen in WTI and Brent oil on Thursday is one factor helping AUD. No one specific catalyst appears behind upside seen in crude oil markets on Thursday, with traders seemingly front running positivity regarding vaccines (the Pfizer/BioNTech vaccine is hoped to get approval in the US this week) and US fiscal stimulus (talks continue, and House Speaker Nancy Pelosi said good progress is being made).


Meanwhile, AUD also has a strong positive correlation with industrial metals (Australia’s largest export is Iron Ore, while Copper is another important export); the Bloomberg Industrial Metals index surged from below 135 to above 137 over the last few hours and currently hold onto gains of nearly 1.8% on the day, helping to prop up AUD. Similar to crude oil markets, the rally in industrial metals did not seem to have any particular catalyst aside from the aforementioned optimism regarding vaccines and stimulus.


Strong data also helping

While recent gains in commodity prices is one factor assisting AUD, a string of much stronger than expected Australian data releases has also contributed to the build-up of optimism towards AUD. Already this week; the AIG Services Index (Nov) rose to 52.9 from 51.4, the House Price Index (QoQ for Q3) rose 0.8% versus expectations for a 1% drop, NAB Business Confidence rose to 12 from 5 and the Westpac Consumer Sentiment index rose 4.1% in December to 112 (its highest levels since October 2010).


AUD/USD went from strength to strength overnight, cleared some key technical levels on its way to a high of 0.7537, and is closing near these highs. The positive price action should see demand follow spot higher and should materialise if we dip back to the 0.7440/50 region while offering interest has grown ahead of 0.7600.


Event Risk Data Today

New Zealand: The November manufacturing PMI will reflect the firming of business conditions. The November update of the food price index, which has been running around 3%yr, will be released. Following this, we expect to receive the November housing market update from REINZ, which has been running red-hot since New Zealand emerged from the Covid-19 lockdown. However, last month the RBNZ announced that it would reimpose its restrictions on high loan-to-value ratio lending from March 2021 - that could see some cooling in activity from December.


US: The PPI has been supported by food and energy components recently, but the market expects growth to slow to 0.1% in November. Meanwhile, the expectations component of the December University Of Michigan Sentiment Survey should get a boost from news around the vaccine, but against a backdrop of rising case counts (market f/c: 76.0). Finally, the FOMC’s Quarles will discuss bank supervision (04:40 AEDT).

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