US equities were weaker, the S&P500 down 0.7%, ahead of a key central bank meeting this week. The defensive US dollar is slightly firmer, and bond yields are lower. The US dollar index is up 0.2% on the day. EUR roundtripped from 1.1300 to 1.1260 and back. USD/JPY fell from 113.73 to 113.23, the safe-haven yen outperforming. AUD fell from 0.7176 to 0.7111. NZD fell from 0.6800 to 0.6746. AUD/NZD ranged between 1.0525 to 1.0560.
US 2yr treasury yields fell from 0.68% to 0.63%, while the 10yr yield fell from 1.50% to 1.41%. Markets fully price the first Fed funds rate hike to be in July 2022. Australian 3yr government bond yields (futures) fell from 1.07% to 1.01%, while the 10yr yield fell from 1.63% to 1.55%. Markets fully price the first RBA rate hike to be in July 2022.
Commodities, Brent crude oil futures fell 0.4% to $75, copper fell 0.1%, gold rose 0.3%, and iron ore rose 6.5% to $111 on expectations China will increase fiscal stimulus next year.
Overnight Currency Range
AUD/USD 0.7111 0.7176
EUR/USD 1.12605 1.1319
GBP/USD 1.3209 1.3268
USD/JPY 113.30 113.72
NZD/USD 0.6746 0.6812
USD/CAD 1.2710 1.2820
USD/CNH 6.3644 6.3765
AUD/JPY 80.67 81.49
AUD/NZD 1.0525 1.0556
After closing the last week in the green, the AUD/USD slides during the New York session, trading at 0.7132 at the time of writing. As shown by European equities fluctuating between gainers and losers, financial markets are mixed. At the same time, US indices begin the day in the red, as the UK reported the first omicron-related death, as the spread of the new strain continues worldwide. Furthermore, some of the most important central banks would hold their last monetary policy meetings of the year, adding to the cautious tone of investors.
At the beginning of the trading week in the Asian session, the Australian dollar remained subdued, peaking at the daily high at 0.7174, then slumping as the market sentiment spurred a flow towards the safe-haven status of the greenback, weighing on the commodity-related currency. In the meantime, the US Dollar Index advances 0.19%, sitting at 96.27, while US bond yields with the 10-year benchmark note are down four basis points (bps), at 1.448%, as the FOMC’s last monetary policy meeting looms.
An absent Australian economic docket left the Australian dollar at the mercy of dynamics surrounding the US dollar. Additionally, suppose the Federal Reserve decides to increase the speed in the bond taper in their last monetary policy meeting. In that case, it could trigger another leg-down in the pair ahead of the end of the year.
As the AUD/USD daily chart depicted, the 0.7186 barrier would still be difficult to overcome as the pair retreated towards the 0.7130s area since Wednesday of the last week. That said, the pair is mild-bearish, as long as the daily moving averages (DMAs) remain above the spot price, with a slightly-downslope direction. Nevertheless, upside risks remain unless the pair breaks below 0.7105.
At press time, on the downside, the first support would be the August 20 cycle low at 0.7105. A break of that level would exert downward pressure on the AUD. The next support would be the YTD low at 0.6992. On the other hand, AUD bulls will need to reclaim 0.7200. In that event, the next resistance would be the confluence of the 50 and the 100-DMAs around the figure at 0.7300.
Event Risk Data Today
Australia: The Q4 ACCI-Westpac business survey will provide a timely update on the manufacturing sector amidst Australia’s staggered reopening and supply concerns. The November NAB business survey should be supported by NSW and Vic’s emergence from lockdown.
NZ: November’s food price index is expected to report a seasonal fall in produce prices (f/c: -0.3%)
Eurozone/UK: Eurozone industrial production is anticipated to improve in October, although supply constraints remain a material headwind (market f/c: 1.3%). The UK’s economic recovery should facilitate a slight fall in the October ILO unemployment rate (market f/c: 4.2%).
US: Labour market tightness and COVID-19 concerns are expected to hinder small business optimism in the NFIB’s November survey (market f/c: 98.4). Meanwhile, producer prices will continue to be buoyed by supply constraints and re-opening demand.