15th June 2021 - AUD/USD struggles to defend 0.7700, RBA minutes, full markets eyed

Good Morning,

Market Headlines

US equities stalled near record highs and bond yields rose ahead of Wednesday’s Fed policy decision. US 2yr treasury yields rose from 0.15% to 0.16%, while the 10yr yield rose from 1.46% to 1.50%. Australian 3yr government bond yields (futures) traded around 0.16%, while the 10yr yield rose from 1.45% to 1.48%.

Commodities, Brent crude oil futures rose 0.3% to $73 – the highest since May 2019, copper rose 0.3%, and gold fell 0.9%, while iron ore rose 1.1% to $222.

Overnight Currency Ranges

AUD/USD 0.7694 0.7726

EUR/USD 1.2094 1.2131

GBP/USD 1.4069 1.4145

USD/JPY 109.62 110.10

NZD/USD 0.7127 0.7151

USD/CAD 1.2128 1.2170

USD/CNH 6.3937 6.4195

AUD/JPY 84.42 84.93

AUD/NZD 1.0730 1.0808

AUD Thoughts

AUD/USD seesaws around 0.7710-15, following a sluggish daily performance, at the start of Tuesday’s Asian session. The Aussie pair struggled to find the direction the previous day amid an off in the key markets and mixed sentiment ahead of Wednesday’s Federal Open Market Committee (FOMC), not to forget a light calendar. However, the returns of full markets and RBA minutes, followed by the US Retail Sales, could offer an interesting Tuesday.

US data has been fuelling reflation fears and more fiscal aides are in the pipeline. However, the Federal Reserve (Fed) policymakers consider these challenges as short-term and battle tapering woes. Of late, initial signals of the US inflation expectations portray the escalating price pressure and keep traders on the edge ahead of the key Fed meeting. Recently, New York Fed’s one-year inflation expectations jumped to a record high whereas the same for three years rose to an eight-year peak. On the other hand, St. Louis Fed’s inflation indicator for 10-years took a U-turn from a two-month low flashed on Friday.

In addition to the inflation worries, chatters surrounding the Group of Seven (G7) members push for covid origin inquiry and dislike for China’s performance in Xinjiang and Hong Kong also weigh on the mood. Furthermore, fears of Delta variant of the covid and challenges for the RBA, as portrayed by Bob Gregory, a veteran economist who once sat on the Reserve Bank’s board.

Looking for further demand from 0.7680 to provide support over coming sessions, whilst offering can be expected from 0.7760.

Event Risk Data Today

Australia: The RBA will publish the minutes of its June Board meeting. Markets will be looking for any further colour from the Bank ahead of the July decision on Yield Curve Control and Quantitative Easing.

New Zealand: In the REINZ housing report for May released today, markets will be interested in any impact from the recent government curbs, The May food price index is set for a moderate 0.2% gain after last month’s minimum wage related rise. Markets expect whole milk powder prices to slip 1.0% at the upcoming GDT dairy auction, in line with futures pricing.

UK: The ILO unemployment rate should hold around 4.8%, with the furlough scheme continuing to prevent job losses until the reopening fully materialises.

US: Markets are looking for flat retail sales in May (consensus is -0.7%), and although consumption remains buoyant we should see a shift into services spending as the economy reopens. The market will be looking for signs of upstream price pressures in both the May PPI (market f/c: 0.4%) and the June Empire State manufacturing index (market f/c: 22.0). Although May industrial production is set to rise a further 0.6%, supply chain disruptions are likely serving as a drag on output. Business inventories are expected to contract 0.1% in April, but should make a positive contribution to growth over the year. And whilst homebuilding sentiment has begun to stabilise, the NAHB housing market index remains at historically elevated levels (market f/c: 83). Finally, total net TIC flows are due for April; we saw a pullback in March on a decline in China and Japan holdings.