17th March 2021 - On hold ahead of Fed’s day

Good Morning,

Market Headlines

Markets were quiet ahead of tomorrow’s FOMC decision. The S&P500 is currently down 0.1%, and bond yields and currencies are little changed. Commodities: Brent crude oil futures fell 0.9% to $68.25, copper fell 2.1%, iron ore rose 1.1% to $165.45, and gold fell 0.1%. The bi-monthly GDT dairy auction resulted in an overall price fall of 3.8%, with whole milk powder down 6.2% (futures markets yesterday predicted -4%). The decline follows a surprisingly large gain at the previous auction, and leaves prices at highs last seen in 2014.

Overnight Currency Ranges

AUD/USD 0.7711 0.7757

EUR/USD 1.1882 1.1952

GBP/USD 1.3809 1.3906

USD/JPY 108.77 109.29

NZD/USD 0.7168 0.7206

USD/CAD 1.2437 1.25

USD/CNH 6.4933 6.5060

AUD/JPY 84.22 84.65

AUD/NZD 1.0753 1.0788

AUD Thoughts

The markets attentions will focus on the FOMC meeting tomorrow morning. No shift in policy is likely with the statement likely to continue to suggest ongoing commitment to the QE program until “substantial further progress” has been made. The statement, however, is likely to convey a more upbeat assessment reflecting the recent fiscal stimulus, strong economic data, and the continued momentum on vaccinations.

AUD/USD remained in a relatively tight 0.7611/.7657 range with all key levels remaining intact. Topside interest remains ahead of 0.7820 while meaningful support should materialise if we drift back toward 0.7620/40.

Event Risk Data Today

Australia: For the February Westpac-MI Leading Index, component updates are mixed, with small gains for the ASX200 and consumer sentiment-based measures, solid months for US industrial production and commodity prices, and a notable steepening in the yield curve; but dwelling approvals and hours worked both falling very sharply. The index growth rate is likely to see a sharp loss in altitude in coming months as last year's COVID disruptions start to drop out of the picture. RBA Assistant Governor Kent will speak on “Small Business Finance in the Pandemic” at 10:30am.

New Zealand: Markets expect the annual current account deficit to widen to 1.0% of GDP in the December quarter, after having narrowed to a 19-year low of 0.8% in September. The main factor this quarter is the lack of the usual lift in overseas visitor spending at this time of year. This will see the deficit widen further over 2021, with overseas travel not expected to begin in earnest until early next year. The first ever NZ ETS (Emissions Trading Scheme) auction, where the government will offer units to bidders, will take place this morning.

US: February housing starts are expected to ease back 1.0%, and February building permits are expected to partially unwind the 10.4% spike seen in January (market f/c: -7.2%). The FOMC will most certainly look to revise up their growth and labour market views for the forecast period at the March policy meeting following the safe passage of President Biden's stimulus package through Congress. As a result, we expect that, while some members of the Committee will look to bring forward their anticipated timing for the first fed funds rate hike(s), the median will remain at or very close to zero to the end of the forecast period. Fed Chair Powell will deliver the post-meeting press conference at 05:30 AEDT.

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