17th February 2021 - AUD/USD falls sharply to 0.7760 area on renewed USD strength


Good Morning,


Market Headlines

Sentiment remained upbeat as the US returned from holiday, the S&P500 nudging 0.1% higher to a fresh record high. US 2yr treasury yields rose from 0.11% to 0.12%, while the 10yr yield rose from 1.22% to 1.29% - the highest since February 2020. Australian 3yr government bond yields (futures) rose from 0.19% to 0.21%, while the 10yr yield rose from 1.31% to 1.39% - a fresh high since March 2020.


Commodities, Brent crude oil futures fell 0.1% to $63.25, copper rose 1.2% to an 8-year high, and gold fell 1.1%. The bi-monthly GDT dairy auction resulted in an overall price rise of 3.0%, with whole milk powder up 4.3% - above yesterday’s futures market prediction of 2%.


Overnight Currency Ranges

AUD/USD: 0.7745 – 0.7801

EUR/USD: 1.2095 – 1.2169

GBP/USD: 1.3870 – 1.3941

USD/JPY: 105.18 – 105.96 (Highest since October)

USD/CAD: 1.2625 – 1.2702

NZD/USD: 0.7198 – 0.7269

AUD/JPY: 81.84 – 82.24

AUD/NZD: 1.0722 – 1.0767


AUD Thoughts

A quiet day on the domestic calendar before attention shifts to Europe & US this evening. UK CPI annual inflation is expected to slow to -0.4% in January (0.6%yr), but should gradually pick up as the effects of low energy prices and the sales tax cut unwind. In the US, we will have to Retail Sales gauge the strength of the rebound (market f/c: 1.0%). By contrast, industrial production was robust coming into yearend; the market is looking for a further 0.4% expansion in January. Business inventories should see a 0.5% rise, the sixth consecutive monthly increase. The US homebuilding sector continues to be supported by housing supply shortages and record low interest rates; the NAHB housing market index is expected to hold onto recent gains in the February update (market f/c: 83.0). Finally, the Fed will publish the Minutes of the January 27th meeting and the FOMC’s Rosengren will take part in a panel discussion hosted by the Concord Coalition (01:15 AEDT).


AUD was softer overnight helped mainly by the stronger USD. Dividend demand is expected to underpin the AUD/USD over the coming days with support expected at 0.7720 while offering interest ahead of 0.7820 should prove hard to breach into the back end of the week.


Event Risk Data Today

Australia: The January Westpac-MI Leading Index will include positive updates on US industrial production (+2% vs +1.5% last month); commodity prices, up 4.8% (in AUD terms) vs 6% last month; and dwelling approvals, up 10.9% vs 3.4% last month. At 12pm, RBA Assistant Governor (Financial Markets) Chris Kent will participate in the Finance & Treasury Association's FX roundtable webinar.


UK: The CPI is expected to slow to -0.4% in January (0.6%yr), but should gradually pick up as the effects of low energy prices and the sales tax cut unwind.


US: The consumer finished 2020 on a soft note, with rising case counts and broader lockdowns disrupting the usual holiday spending pattern. The market will be paying close attention to January retail sales to gauge the strength of the rebound (market f/c: 1.0%). By contrast, industrial production was robust coming into yearend; the market is looking for a further 0.4% expansion in January. Business inventories should see a 0.5% rise, the sixth consecutive monthly increase. The US homebuilding sector continues to be supported by housing supply shortages and record low interest rates; the NAHB housing market index is expected to hold onto recent gains in the February update (market f/c: 83.0). Finally, the Fed will publish the Minutes of the January 27th meeting and the FOMC’s Rosengren will take part in a panel discussion hosted by the Concord Coalition (01:15 AEDT).

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