The Federal Reserve’s FOMC meeting statement surprised markets by showing a majority of members expected rate hikes by 2023. US equities fell (S&P500 currently -0.5%), while bond yields and the US dollar jumped, causing a sharp fall in the AUD and NZD. The US dollar index is up 0.7% on the day, and at a six-week high, the USD outperforming all the majors. EUR fell from 1.2125 to 1.2009 – the lowest since early May. USD/JPY rose from 109.81 to 110.52 – a three-month high. AUD fell from 0.7716 to 0.7609 – a two-month low. NZD fell from 0.7155 to 0.7048 – a two-month low. AUD/NZD fluctuated following the FOMC, between 1.0782 and 1.0804.
US 2yr treasury yields rose from 0.16% to 0.21% in response to the FOMC statement, while the 10yr yield rose from 1.48% to 1.59% and is currently at 1.56%. Australian 3yr government bond yields (futures) rose from 0.35% to 0.39% (well above yesterday’s 0.15% due to the change of front futures contract), while the 10yr yield rose from 1.55% to 1.62%.
Commodities, Brent crude oil futures rose 0.2% to $74 – the highest since April 2019, copper fell 0.5%, and gold fell 1.0%, while iron ore fell 3.2% to $214.
Overnight Currency Ranges
AUD/USD 0.7607 0.7715
EUR/USD 1.1994 1.2134
GBP/USD 1.3983 1.4132
USD/JPY 109.80 110.72
NZD/USD 0.7043 0.7155
USD/CAD 1.2158 1.2280
USD/CNH 6.3904 6.4422
AUD/JPY 84.07 84.75
AUD/NZD 1.0768 1.0802
Today’s jobs data for May and RBA Governor Lowe’s speech are key. Governor Lowe’s speech is titled From Recovery to Expansion and comes ahead of the important July Board meeting at which decisions will be rubber stamped on the bond yield target and QE programme.
Looking for bids in the 0.7580/0.7600 to provide some support in the short term for AUD/USD. Offers from 0.7680 as the range ratchets lower.
Event Risk Data Today
Australia: The May jobs report is expected to show employment rose by 30k.Markets also expect the unemployment rate will rise from 5.5% to 5.7% due to a rebound in participation. RBA Governor Lowe gives a speech on “From Recovery to Expansion” at 10am in Toowoomba, Queensland.
New Zealand: Markets expect a 0.6% rise in GDP for the March quarter, following a fall of 1.0% in December. While the absence of international tourism is likely to continue disrupting the seasonal patterns in the data, the domestic economy continues to be supported by a strong housing market which many sectors have benefitted from.
Eurozone: CPI inflation in May is expected to be finalised at a 0.3%m/m, 2.0%y/y pace.