Markets were in a positive mood, helped by vaccine developments and signs of progress in the US fiscal stimulus talks. The S&P500 is currently up 1.3%, the AUD and NZD are higher, and bond yields are higher. Commodities, Brent crude oil futures rose 0.6% to $50.60, copper rose 0.6%, iron ore rose 0.8% to $155.00, and gold rose 1.4%. The bi-monthly GDT dairy auction resulted in an overall price rise of 1.3%, with whole milk powder up 0.5% - in line with earlier futures market predictions.
AUD/USD: 0.7513 – 0.7571
EUR/USD: 1.2121 – 1.2169
GBP/USD: 1.3280 – 1.3452
USD/JPY: 103.68 – 104.12
USD/CAD: 1.2695 – 1.2769
NZD/USD: 0.7060 – 0.7098
AUD/JPY: 78.11 – 78.51
AUD/NZD: 1.0620 – 1.0667
Global markets focused on Brexit talks and the US aid package discussions. Both are providing a degree of longer-term optimism as there appears to be some headway in recent discussions on both fronts. This has lifted spirits and buoyed the higher-beta currencies, such as the Aussie, and weighed on the greenback:
Meanwhile, there remain two sticking points to get bipartisan agreement on the US fiscal package which are there liability protection for employers and aid for state and local governments. Congress is expected to vote on the deal when they meet on Wednesday.
Domestically, the Reserve Bank of Australia minutes were in line with market expectations and did not offer any surprises given the recent positive data releases. The minutes, however, also noted that China’s import bans and other obstacles to imports of some Australian products, particularly agricultural products and, more recently, coal, had affected Australian trade. Nonetheless, Chinese demand for Australian iron ore exports remained firm and prices are supportive, higher by some 0.7% on the day in the front-month futures contract.
On the other hand, despite the stronger-than-expected employment outcomes in October, members also expressed concerns on the significant amount of spare capacity in the labour market. Overall, the Board reaffirmed the policy settings for the next six months with the cash rate at 0.1%, the expanded Term Funding Facility (TFF) and the RBA’s A$100b QE program.
For the week ahead, the Federal Reserve is going to be key. Our base case sees further downside risks for USD, but its downtrend is now increasingly mature. Stretched positioning & valuation considerations may ultimately be a limiting factor on a dovish outcome The analysts are also watching Aussie November employment numbers, where we expect headline employment to increase above consensus (TD: +50k, cons: +40k).
AUD/USD continued to strengthen overnight and peaked at a high of 0.7571. The key downside support area remains at 0.7500-7485 whilst further topside resistance is expected near the overnight highs and again at 0.7675
Event Risk Data Today
Australia: The Westpac-MI Leading Index growth rate rose from –0.47% in September to +3.25% in October – marking the first positive, above trend, growth rate since 2018 and the strongest gain since the early 1980s. The November read is likely to show a similar result. It will include positive updates on: the ASX200 (up 10%); dwelling approvals (up a further 3.8% after a 16% spike last month); and around the labour market.
New Zealand: The market anticipates that the current account deficit will narrow over the September quarter to just 0.8% of GDP. If this proves correct, the deficit would be the smallest since 2001. Whilst the Treasury’s economic forecasts to date have been notably downbeat, we expect that the Half–Year Economic and Fiscal Update will bow to the mounting evidence that the economy has bounced back readily from the Covid–19 lockdown.
US: Retail sales have slowed dramatically ahead of the November release (market f/c: -0.3%). December Markit manufacturing (market f/c: 55.9) and services (market f/c: 55.9) PMIs will reveal the impact of renewed restrictions and rising case counts into year end. Business inventories should continue to restock in October and into the new year (market f/c: 0.6%). The December NAHB housing market index is expected moderate but remain at elevated levels (market f/c: 88). Finally, the FOMC will deliver its December policy decision - there is clearly a justification to increase accommodation, and it is much easier to pull back on stimulus than to make up for lost time. Chair Powell will hold the post-meeting press conference at 06:30 AEDT.