Markets were mixed at quarter-end. The US dollar extended recent gains and bond yields fell, indicating a slightly risk-averse tone in these asset classes. Commodities and equities, though, remained elevated, the S&P500 up 0.2% to a record high. The US dollar index is up 0.4% on the day, and at a three-month high, perhaps helped by expectations of a strong payrolls report on Friday. EUR fell from 1.1900 to 1.1895 via 1.1845. USD/JPY rose from 110.45 to 111.12. AUD fell from 0.7520 to 0.7492. NZD fell from 0.7000 to 0.6965. AUD/NZD slipped from 1.0750 to 1.0730. US 2yr treasury yields dipped to 0.24% before settling at 0.25%, while the 10yr yield fell from 1.48% to 1.44%.
US ADP private sector employment in June rose +692k (est. 600k, prior revised to 886k from 978k) with 624k being in services. Pending home sales in May surprised with a gain of 8.0%m/m (est. -1.0%m/m, prior -4.4%m/m highest reading for May since 2005, with gains seen across all regions, supported by low mortgage rates (sub 3%). The MNI Chicago PMI fell from 75.2 to 66.1 (estimate 70.0), still elevated, with new orders and production still expanding but at a slower pace. Employment, however, declined.
Commodities, Brent crude oil futures rose 0.5% to $75, copper rose 0.4%, and gold rose 0.5%, all helping the CRB commodity index rise to a six-year high. Iron ore rose 2.5% to $217.
Overnight Currency Ranges
AUD/USD 0.7492 0.7526
EUR/USD 1.1814 1.1909
GBP/USD 1.3799 1.3873
USD/JPY 110.42 111.12
NZD/USD 0.6965 0.7006
USD/CAD 1.2356 1.2423
USD/CNH 6.4587 6.4693
AUD/JPY 82.83 83.34
AUD/NZD 1.0731 1.0760
AUD/USD seesaws around 0.7500, takes a breather following three-day fall to weekly low, amid the early Asian morning on Thursday. The Aussie pair’s latest south-run could be linked to the coronavirus (COVID-19) woes in Australia as well as the broad strength of the US dollar. Major parts of Queensland, New South Wales, the Northern Territory and Western Australia witness local lockdowns with strict border control as the Oz nation struggles with the Delta variant outbreak. While the cases are mostly linked and marked traceable, the central government’s stand over ignoring AstraZeneca vaccine for blood clotting issue gets high criticism from states. It’s worth noting that a 4.0% fully-vaccinated Australian count pushes Canberra to speed up on its jabbing.
Other than the covid fears, China’s weaker-than-previous official PMIs and upbeat US ADP Employment Change for June also contributed to the AUD/USD pair’s weakness.
Additionally, the US dollar’s strength adds to the pair’s downside as the greenback gauge ended Q2 2021 with the strongest monthly gains in 4.5 years. While upbeat economics back hopes for firmer US NFP and keep the greenback stronger, uncertainty over the Fed’s next move and hawkish Fedspeak offer extra strength to the US currency. Recently, Fed's Robert Kaplan reaffirmed his hawkish stance and said, ''I’d want to taper sooner than the end of the year.''
Amid these plays, Wall Street marked mixed performance whereas the US 10-year Treasury yields dropped 1.2 basis points to 1.468%. Further, the US Dollar index (DXY) jumped to the highest since early April.
Looking forward, Australia trade numbers for May and China Caixin Manufacturing PMI for June will offer immediate direction to the pair, not to forget the covid updates and other risk-related headlines. However, major attention will be given to the US ISM Manufacturing PMI and Jobless Claims for the day as they will offer clearer signs for tomorrow’s US Nonfarm Payrolls (NFP).
Forecasts suggest a mixed view of the Aussie and China data to keep AUD/USD pressured towards the yearly low amid downbeat qualitative catalysts. However, any negative surprises from the US numbers may trigger the pair’s consolidation move later in the day.
Event Risk Data Today
Australia: The daily index points to another strong 2% gain in the June CoreLogic home value index, Sydney dwelling prices up closer to 2.5%. Annual price growth is set to tip over into double digits this month with a gain of just over 12%yr. For May, markets expect the trade balance surplus to rise to a record high of $10.5bn, up $2.5bn on April, led by export strength. Export earnings increased by a forecast 6.4% in the month, +$2.6bn. Customs data reports that iron ore was again a standout, up strongly in May on higher prices and volumes. Imports largely marked time, up a forecast 0.3%, $0.1bn.
China: The market expects that the Caixin Manufacturing PMI will hold around current levels, an expansionary read of 51.9.
Euro Area: The May unemployment rate is set to hold at 8.0%, with furlough schemes continuing to support the labour market.
US: The market is looking for initial jobless claims to fall to 387k, although the series has been choppy of late. Construction spending is expected to advance a further 0.5% in May, with strength likely concentrated in residential. The June ISM manufacturing survey will be closely watched by markets, particularly around the prices and employment detail (market f/c: 61.0)