Markets remained cautious ahead of the latest US company earnings reports, stagflation concerns at the fore. The S&P500 is down 0.2%, the defensive US dollar is slightly higher, and bond yields are lower. US 2yr treasury yields ranged between 0.33% and 0.36%, while the 10yr yield fell from 1.62% to 1.58%. Australian 3yr government bond yields (futures) traded around 0.76% - a 20-month high, while the 10yr yield fell from 1.76% to 1.71%.
Commodities, Brent crude oil futures fell 0.3% to $84, copper fell 0.9%, gold rose 0.3%, and iron ore fell 5.7%.
Overnight Currency Range
AUD/USD 0.7332 0.7384
EUR/USD 1.1522 1.1570
GBP/USD 1.3568 1.3635
USD/JPY 113.00 113.78
NZD/USD 0.6925 0.6969
USD/CAD 1.2434 1.2499
USD/CNH 6.4497 6.4640
AUD/JPY 82.97 83.79
AUD/NZD 1.0578 1.0611
The Australian dollar has pulled back on Tuesday’s US session, returning to 0.7360 area after having reached fresh one-month highs at 0.7385. The pair, however, is showing strength despite the rising concerns about surging inflation pressures and has rallied about 2.5% in October so far.
Higher commodity prices are boosting AUD’s rally - The Aussie seems unaffected by the US dollar’s strength and has maintained its positive tone this week. The increasing commodity prices, with iron ore, one of Australia’s main exports surging amid higher demand from China, is driving the AUD higher across the board. Beyond that, the relaxation of COVID-19 restrictions in Sydney, the country’s most populated city, which has gone through a four-month lockdown, has increased optimism about a post-pandemic recovery while the authorities accelerate the pace of vaccination.
AUD/USD has broken out resistance at 0.7312/17, which suggests a short-term correction higher to the 2021 downtrend at 0.7365, which we then expect to cap the market. Thereafter, support is seen at 0.7291/87 initially, below which would confirm a turn back lower and retest of 0.7179/70 lows.
Event Risk Data Today
Australia: Westpac-MI Consumer Sentiment has continued to show impressive resilience of late, the September read of 106.2 comfortably above those of the 5 years prior to the pandemic.
New Zealand: REINZ housing data continues to highlight the effect of restrictions on sales, but also strength in price growth. September food prices and October ANZ business confidence are also due.
China: September’s trade balance is expected to show continued strength in the world’s demand for Chinese goods.
Europe: Industrial production is expected to reverse July’s gain in August. The UK’s August trade balance is also due.
United States: The minutes of the September FOMC meeting will provide greater clarity on the Committee’s view of the risks. The September CPI is likely to print a robust 0.3% gain, as it did in August.