12th July 2021- AUD regains lost ground to open at .7490

Market Headlines

A positive session and new record highs to round out last week with all three major U.S equity indices gaining >1% while US interest rates remained relatively flat. The USD was softer against its major trading partners including the AUD which after seeing 0.7410 lows, regained some lost ground to close at 0.7488. Markets flipped back into risk-seeking mode without any obvious catalyst on the day. The S&P500 rose 1.1% to a record high, bond yields rose, and risk-sensitive currencies outperformed.

Commodities: Brent crude oil futures rose 1.9% to $76, copper rose 1.7%, and gold rose 0.3%. Iron ore fell 1.2% to $215.

Overnight Currency Ranges

AUD/USD 0.7410 0.7494

EUR/USD 1.1825 1.1881

GBP/USD 1.3756 1.3909

USD/JPY 109.75 110.25

NZD/USD 0.6923 0.7003

USD/CAD 1.2443 1.2556

USD/CNH 6.4790 6.5000

AUD/JPY 81.31 82.54

AUD/NZD 1.0688 1.0715

AUD Thoughts

The weaker USD helped the AUD/USD close the week at 0.7488 after earlier trading to a low of 0.7410. Friday’s sharp upward reversal flips the intraday outlook from bearish to neutral. Demand is expected ahead of the 0.74c psychological level, while offering interest is staggered all the way to 0.76c. China’s trade data will kick off the week, with market participants paying close attention to China’s export figures. Indeed, the month of June could witness the peak of China’s exports. China’s growth model in 1H21 was very different from that in the past decade, as it is driven more by exports instead of investment, thanks to the stimulus in the US. That said, exports might have already peaked with goods demand peaking in the US. China’s exports to the US already softened in May, and the June number could confirm the peak again. Imports could remain strong at this stage with elevated commodity prices and the resilient supply chain in Asia.

Event Risk Data Today

New Zealand: REINZ house sales are due this week. While sales have softened in recent months, they remain above pre-Covid levels. The reintroduction of loan-to-value restrictions and changes to the tax rules have led to a slowdown in investor demand, but it appears that owner-occupiers have been willing to step into the breach. Despite slowing turnover, house prices have continued to rise at a solid pace, with the REINZ price index up almost 30%yoy in May. This is likely to mark the peak in annual growth, as house prices were falling in April-May last year during the Covid lockdown. Indicators for June have so far been mixed. Listings data suggest a further drop in sales, but loan demand has been strong and auction clearance rates have picked up again. Markets are forecasting a further 0.2% rise in retail card spending in June. That’s expected to be underpinned by ongoing firmness in goods purchases. The dialling up of the Covid Alert Level in Wellington in mid-June is expected to have only a limited dampening impact on spending. The Alert Level was increased only for a short period and level 2 restrictions still allow most activity to occur.

US: The FOMC’s Kashkari will speak at a virtual townhall event.

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