Equity markets in Europe and the US remained upbeat, the S&P500 currently up 0.9%. Ahead of the December meeting, ECB President Lagarde said policy makers will focus on emergency bond purchases and long-term bank funding: “While all options are on the table, the pandemic emergency purchase program and targeted longer-term refinancing operations have proven their effectiveness,” she said. “They are therefore likely to remain the main tools for adjusting our monetary policy.” Commodities, Brent crude oil futures rose 1.0% to $44.05, copper fell 0.9%, iron ore rose 1.8% to $124.75, and gold fell 0.7%.
AUD/USD: 0.7261 – 0.7314
EUR/USD: 1.1745 – 1.1828 (weighed down by dovish comments from ECB’s Lagarde and Knot.)
GBP/USD: 1.3189 – 1.3322
USD/JPY: 105.21 – 105.68
USD/CAD: 1.3027 – 1.3076
NZD/USD: 0.6864 – 0.6904 (20-month high)
AUD/JPY: 76.62 – 77.09
AUD/NZD: 1.0576 – 1.0605 (a four-month low)
AUD/USD is currently trading at 0.7277 having travelled between a range of 0.7318 and a low of 0.7260, somewhat under pressure from both a technical and fundamental perspective. The optimism about a potential coronavirus vaccine was offset by worries about how the drug will be stored and administered at a time when the US needs it the most.
Markets presume that central banks and governments will have to keep fiscal and monetary policies uber-easy. The eruption in volatility caused by this week's positive vaccine news from Pfizer/BioNtech had initially sunk the dollar before markets realised that it could mean less stimulus over a shorter time frame as the news injected urgency into the reflation trade.
However, from a technical standpoint, the dollar is somewhat overstretched. If the market maintains the opinion that the Federal Reserve will remain uber easy and that under a Democratic ruling at the White House, fiscal stimulus will be pumped to higher than potentially anticipated levels, a move out of USDs and into high yield currencies is likely to lend support to the commodity complex, including the Aussie.
The AUD/USD came off yesterday’s high of 0.7318 to settle at 0.7275 in the final hours of North American trade. Offering interest has likely grown above the recent highs of 0.7340 while demand is expected to slow any dip back toward 0.7240/50.
Event Risk Data Today
Australia: November inflation expectations, expectations fell 1ppt during the nadir of the pandemic, but have since stabilised around 3.0-3.5%.
New Zealand: September net migration will remain muted with border restrictions in place.
Euro Area: The market expects September industrial production will rise 0.6%, but the recovery will stall in coming months as Europe again returns to lockdown. The ECB will hold its annual Forum on Central Banking (Nov 11-12). This year’s theme is “Central Banking in a Shifting World”. Notable speakers include ECB President Lagarde, BoE Governor Bailey, and FOMC Chair Powell.
UK: The trade balance is expected to narrow again in September (market f/c: GBP850m). Whilst the market is looking for GDP to rebound in Q3 (market f/c: 15.8%), a contraction is imminent as the new lockdown begins to bite.
US: The October CPI is set to remain anaemic at 0.1% (1.3%yr), well below the Fed’s 2%yr inflation target. Meanwhile, elevated initial jobless claims continue to emphasise the churn being seen in the labour market (market f/c: 732k). The FOMC’s Evans will speak at a Detroit community forum (05:00 AEDT).