Market Headlines
US bond yields and the US dollar rose despite disappointing US economic data, hawkish Fedspeak contributing. That weighed on the AUD and NZD. US equities were little changed, the S&P500 up 0.1%.
The US dollar index closed up 0.4% on the day. EUR fell from 1.1483 to 1.1399. USD/JPY rose from 113.49 to 114.27. AUD fell from 0.7294 to 0.7198. NZD fell from 0.6874 to 0.6792. AUD/NZD slipped from 1.0610 to 1.0586.
US 2yr treasury yields rose from 0.91% to 0.97%, while the 10yr yield rose from 1.71% to 1.79%. Markets fully price the first Fed funds rate hike to be in April 2022. Australian 3yr government bond yields (futures) rose from 1.28% to 1.32%, while the 10yr yield rose from 1.87% to 1.93%. Markets fully price the first RBA rate hike to be in June 2022.
Commodities, Brent crude oil futures rose 1.9% to $86, copper fell 2.6%, gold fell 0.3%, and iron ore fell 0.3% to $127.
Overnight Currency Range
AUD/USD 0.7198 0.7293
EUR/USD 1.1398 1.1483
GBP/USD 1.3654 1.3742
USD/JPY 113.47 114.27
NZD/USD 0.6793 0.6873
USD/CAD 1.2471 1.2570
USD/CNH 6.3428 6.3669
AUD/JPY 82.05 83.16
AUD/NZD 1.0589 1.0612
AUD Thoughts
China’s GDP for 2021Q4 is due later today. A weak print is widely expected, given the power rationing, COVID outbreak, and the slumping property sector.
The monthly indicators may show some signs of stabilisation given the marginal easing of policies. Industrial production could stay at the current level. Supply constraints may ease with less emphasis on decarbonization but the demand side remains a concern. Retail sales may remain resilient as well with auto sales improving. The property sector may not improve a lot in December. Property policies eased only on the margin in the past few months, and retains a tightening bias for now. The picture should hardly get any better in the next few months, especially with a high base kicking in.
Instead of a weak macro backdrop, what matters more to the markets is the policy pivot from regulation tightening to supporting growth, as confirmed by the politburo meeting and CEWC last December. A new easing cycle has started, and the year ahead would be determined by a race between economic slowdown and policy stimulus.
The AUD/USD traded in a 0.7198/0.7293 range on Friday and ended the week at 0.7217. Fridays dip saw demand filled ahead of 0.7200 while further support is expected at 0.7160. Resistance remains ahead of 0.7340 and again at 0.7430.
Event Risk Data Today
China: 4Q GDP y/y, December Industrial Production y/y, December Retail Sales y/y
Japan: Machinery orders should continue to build in November as the economic recovery continues, although omicron remains as a headwind (market f/c: 1.3%).
UK: After a strong year of gains in 2021, growth in Rightmove’s house prices is anticipated to cool slightly over the course of 2022.