The risk averse mood in Europe dissipated in the US, the S&P500 recovering to be up 0.2%. Commodities remained on the back foot, though, and the defensive US dollar rose, while bond yields were contained. There was little fresh news for markets, concerns about Covid-related activity slowdowns and Fed tapering remaining at the fore.
The US dollar index is up 0.5% on the day, with defensive currencies performing best. EUR ranged between 1.1666 – a 10-month low - and 1.1716. USD/JPY ranged between 109.48 and 109.23. AUD fell from 0.7200 to 0.7142 – a 10-month low. NZD fell from 0.6850 to 0.6809 – a 10-month low – before steadying. AUD/NZD fell from 1.0500 to 1.0446.
US 2yr treasury yields rose from 0.20% to 0.22%, while the 10yr yield initially fell from 1.26% to 1.22% before steadying around 1.24%.
Commodities, Brent crude oil futures fell 1.8% to $67 (a three-month low), copper fell 1.8% (a five-month low), and gold fell 0.4%. Iron ore plunged 13.7% to $129 – a nine-month low - amid expectations Chinese steel production will decline.
Overnight Currency Range
AUD/USD 0.7143 0.7243
EUR/USD 1.1665 1.1715
GBP/USD 1.3632 1.3754
USD/JPY 109.49 110.22
NZD/USD 0.681 0.6888
USD/CAD 1.2649 1.2831
USD/CNH 6.4862 6.504
AUD/JPY 78.22 79.56
AUD/NZD 1.0463 1.0537
The recent negative sentiment continued overnight and with little on the data calendar today to change the direction we can expect further weakness into the weekend.
Although concerns about global growth have been building over past weeks, what seems to have spurred to the latest sell-off was the Fed’s FOMC Minutes. Whilst no timeline for ‘tapering’ was provided it appears that majority of meeting participants favoured a tapering to begin in 2021, with only “several” seemly wanting to wait until 2022 to begin, presumably to allow the latest wave of new cases to be pushed back by new mask and vaccine mandates. With the FOMC coalescing around a 2021 start-date, the prospect of a ‘taper’ announcement in September or November also becomes more palpable. Jay Powell’s speech at the Jackson Hole Symposium (August 26-28) is now “in play” too, insofar as it could offer new incrementalism too.
AUD/USD remained heavy on its way to a low of 0.7143 overnight and downside order books have been all but cleared. Technical support is expected at 0.7050/60 while offering interest remains thick above 0.7240.
Event Risk Data Today
Australia: RBA Assistant Governor Kent (Financial Markets) will provide an address to the FX Markets 2021 Conference (online) at 9:05 AEST.
UK: The market is forecasting a 0.2% rise in July retail sales, highlighting the uptick in consumer activity and confidence since containment measures were lifted on July 17 ‘Freedom Day’. Meanwhile, August GfK consumer confidence is set to hold at -7. The July public sector borrowing deficit will remain wide on record peacetime borrowing (market f/c: £11.0bn).