16th June 2021- AUD/USD struggles to regain 0.7700 from weekly low as market braces for FOMC

Good Morning,

Market Headlines

A mixed bag of US economic data kept equities and currencies in a holding pattern, awaiting the Fed announcement. Bond yields rose slightly following the strong US PPI inflation result. US 2yr treasury yields rose from 0.16% to 0.17%, while the 10yr yield rose from 1.48% to 1.51%.Australian 3yr government bond yields (futures) traded around 0.15%, while the 10yr yield rose from 1.51% to 1.57%.

Brent crude oil futures rose 1.8% to $74 – the highest since April 2019, copper fell 4.1%, and gold fell 0.4%, while iron ore fell 0.3% to $221. The bi-monthly GDT dairy auction resulted in an overall price decline of 1.3%, with whole milk powder down 1.8% which was line with yesterday’s futures market predictions.

Overnight Currency Ranges

AUD/USD 0.7674 0.7716

EUR/USD 1.2102 1.2147

GBP/USD 1.4035 1.4128

USD/JPY 109.99 110.17

NZD/USD 0.7105 0.7159

USD/CAD 1.2130 1.2204

USD/CNH 6.4006 6.4105

AUD/JPY 84.53 84.92

AUD/NZD 1.0774 1.0804

AUD Thoughts

AUD/USD struggles to regain 0.7700 from weekly low as market braces for FOMC

AUD/USD wobbles around 0.7680-90, off a weekly low, as it begins the key Wednesday comprising the US Federal Open Market Committee (FOMC) meeting. Other than the pre-Fed caution, mixed data from the US and a light news feed also contribute to the pair’s latest sluggish performance. Looking forward, nothing matters more than the Fed and hence the pre-FOMC trading lull could keep AUD/USD chained. However, Australia’s Westpac Leading Index and China’s Industrial Production, as well as Retail Sales, may offer intermediate moves to the pair traders.

Until then, expect currencies to remain subdued although the AUD/USD offshore pullback seeing resting bids filled in the 0.7680 region.

Offers now from 0.7740.

Event Risk Data Today

Australia: The May Westpac-MI Leading Index is likely to see a further slowdown with several components recording pull-backs in the month, with the latest Vic lockdown delivering a shock to consumer sentiment and a notable pull back in dwelling approvals (-8.6% vs 18.9% last month). Against this, the Index growth rate will continue to get some offsetting support from a rising share market and buoyant commodity prices (up 5.8% in AUD terms).

New Zealand: Markets expect the annual current account deficit to widen to 2.1% of GDP in the March quarter, after having narrowed to a 19-year low of 0.8% late last year. The main factor is the lack of the usual lift in overseas visitor spending at this time of year. This will see the deficit widen further over the rest of 2021, with the border not fully opening until next year.

China: May retail sales (market f/c: 26.3%yr ytd), industrial production (market f/c: 18.0%yr ytd), and fixed asset investment (market f/c: 17.0%yr ytd) should reveal strong consumer spending, whilst production and incomes are buoyed by domestic and external demand.

US: May housing starts are expected to advance 5.2%, while building permits should ease off 0.2%; going forward, elevated lumber costs pose a risk to the outlook for homebuilding activity. The May import price index is set to rise 0.7% on strength in energy import prices. The June FOMC meeting will be interesting for a number of reasons. First up, after the meeting, the Committee's revised forecasts will be provided, guiding on their central expectations for the coming three years. Second, Chair Powell’s press conference will give a good guide on the degree of confidence the Committee has in their central projection for both inflation and the labour market -- the FOMC's two core concerns. Third, for these two aspects of the economy, an assessment of the risks will be provided. This will help guide on how great an impact key risks are likely to have on the outlook for policy, should they eventuate.