19th March 2021 - Greenback returns by the hand of yields

Good Morning,

Market Headlines

US yields rose in the wake of yesterday’s FOMC meeting, as markets bet on inflation rising. Federal Reserve chief Jerome Powell showed no concerns about rising government bond rates, long-term bond yields soared. That on the 10-year Treasury note hit 1.756%, to settle around 1.72%.That unnerved equities, the S&P500 currently down 1.0%. The risk averse mood and the higher yields were both US dollar supportive. Commodities: Brent crude oil futures fell 2.9% to $63.10, copper fell 0.8%, iron ore rose 0.1% to $165.65, and gold fell 0.7%.

Event Wrap

The Philadelphia Fed business survey jumped to a near 50-year high of 51.8 from an already strong 23.1 in February. There was a marked lift in all major components: prices paid and prices received, new orders (a 50-year high of 50.9 vs 23.4), the future outlook (61.6 vs 39.5), and employment (30.1 s 25.3). Weekly initial jobless claims were higher than expected at 770k (est. 700k, prior 725k revised from 712k), continuing claims also higher at 4.124m (est. 4.03m). The leading index in Feb. edged up +0.2%m/m (est. +0.3%m/m, prior +0.5%m/m).

The BoE policy meeting left settings unchanged and remained committed to not raising rates until there is evidence of “good progress on inflation”. The minutes and statement referred to several areas of progress since their February meeting.

Eurozone trade surplus in Jan. of EUR24.2bn missed the median estimate of EUR29bn (prior EUR27.5bn). Eurozone labour costs in Q4 rose to +3.0%y/y from prior +1/6%y/y. However, the series has been particularly volatile through the pandemic-hit year.

Overnight Currency Ranges

AUD/USD 0.775 0.7849

EUR/USD 1.19065 1.1989

GBP/USD 1.3897 1.4001

USD/JPY 108.62 109.3

NZD/USD 0.7161 0.7268

USD/CAD 1.2361 1.2527

USD/CNH 6.485 6.5151

AUD/JPY 84.32 85.45

AUD/NZD 1.0763 1.084

AUD Thoughts

A see-sawing night saw the AUD end Thursday withing 15pts of where it started Wednesday, having traded in a circa 2% range to get back there. Local employment data was stronger than expected yesterday for February and returned to pre-COVID levels. Looking forward, Retail Sales numbers will be released, on balance markets expect Feb to show a decent 1% gain.

The AUD/USD bounce seen during Asia carried it back to 0.7849, which is where we expect offering interest to lie in the short term. The recent USD weakness has subsided marginally, opening the door for a move lower where we see demand now resting between 0.7700 and 0.7720.

Event Risk Data Today

Australia: Retail sales have been choppy through Nov - Jan due to both COVID disruptions ('mini-lockdowns' in several states) and shifts relating to 'Black Friday' sales and catch-up spend in Vic following the state's reopening. February saw yet more COVID disruptions, this time with Qld and Vic both instituting week-long lockdowns. Our Westpac Card Tracker suggests these had limited impact for the month as a whole. On balance markets expect Feb to show a decent 1% gain.

Japan: Although rising energy and import costs should apply some pressure to the February CPI, the underlying pulse remains soft (market f/c: -0.4%yr).

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