18th February 2022 - AUD fell on a geopolitical headline, unable to reclaim 0.7200

Market Headlines

A slightly risk-averse mood prevailed in equity and bond markets, the S&P500 currently down 1.5%. Ukraine and Fed tightening remained the main concerns. FOMC member Bullard continued to advocate for a front-loaded policy response to inflation pressures, still favouring 100bp in rate hikes over H1, with balance sheet reductions commencing in Q2. He said forecast for temporary price pressures have proved incorrect and that there are risks that inflation will remain high. He added that a lot of policy normalisation has already been priced in.

The US dollar index is up 0.2% on the day. EUR ranged between 1.1323 and 1.1386. USD/JPY fell from 115.40 to 115.85. AUD ranged between 0.7180 and 0.7217. NZD rose from 0.6680 to 0.6718. AUD/NZD eked a slightly lower range of 1.0733-1.0757.

US 2yr treasury yields eked a lower range of 1.46% to 1.52%, while the 10yr yield fell from 2.03% to 1.95%. Markets continue to price some chance of a 50bp rate hike in March 2022. Australian 3yr government bond yields (futures) fell from 1.70% to 1.65%, while the 10yr yield fell from 2.26% to 2.20%. The first RBA rate is priced for June 2022.

Commodities, Brent crude oil futures fell 1.9% to $93, copper fell 0.3%, gold rose 1.5%, and iron ore fell 8.0% to $130 after further measures in China to cool prices.

Overnight Currency Range

AUD/USD 0.7151 0.7217

EUR/USD 1.1323 1.1386

GBP/USD 1.3556 1.3638

USD/JPY 114.84 115.53

NZD/USD 0.6659 0.6716

USD/CAD 1.2675 1.2733

USD/CNH 6.3284 6.338

AUD/JPY 82.30 83.33

AUD/NZD 1.0726 1.0772

AUD Thoughts

On Thursday, during the New York session, the AUD/USD reached a daily high at 0.7217, followed by a drop below a four-month-old downslope trendline, sparked in part by geopolitical headlines, alongside the former, retracing under 0.7200. The AUD/USD is flat at press time, trading at 0.7193. During the week, the AUD/USD began on the wrong foot but recovered on Tuesday, when the three-day rally commenced. On Wednesday, the upward break of the 50-DMA at 0.7169 ignited a move towards 0.7200, but AUD bulls fell short of it, stalling at the four-month-old aforementioned trendline around 0.7204.

A quiet day ahead on the data from with attention firmly focussed on the potential Russian invasion of Ukraine.

The AUD/USD is neutral biased, slightly tilted to the downside, facing a wall of solid resistance levels in the 0.7200-40 area. Breach of the latter would expose the January 20 daily high at 0.7257, followed by the January 13 at 0.7313. However, the AUD/USD path of least resistance is downwards. The first support would be the 50-DMA at 0.7170. A clear break would send the pair tumbling to February 14 daily low at 0.7085, followed by the February 4 daily low

Event Risk Data Today

Japan: With the January CPI release expected to print at near pre-pandemic levels, the BOJ has started to indicate a focus on wages growth (market f/c: 0.6%yr).

Eur/UK: COVID-19 concerns should continue to weigh on European consumer confidence in February (market f/c: -8.0). Although omicron temporarily softened consumer spending in the UK, a rebound in retail sales is anticipated in January (market f/c: 1.2%).

US: Existing home sales are expected to fall in January with a lack of inventory hindering sales activity (market f/c: -1.3%). The January leading index should meanwhile reflect the US’ robust economic momentum (market f/c: 0.2%). The FOMC’s Evans and Waller will take part in a policy panel concerning the Fed’s new policy strategy. Mester and Williams will both discuss the economic outlook at different events. Brainard will speak on central bank digital currencies.

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