20th October 2021 - AUD/USD trades at three-month fresh highs, closes to 0.7500

Market Headlines

Sentiment was upbeat, with US equities rising further amid continuing strength in company earnings. The S&P500 is up 0.7%, risk-sensitive currencies have outperformed, and bond yields have risen. S 2yr treasury yields ranged between 0.39% and 0.41%, while the 10yr yield rose from 1.57% to 1.63% - a five-month high. Markets are pricing the first Fed funds rate hike in November 2022. Australian 3yr government bond yields (futures) ranged sideways between 0.91% and 0.98%, while the 10yr yield ranged sideways between 1.73% and 1.78%. Markets are pricing the first cash rate hike in August 2022.

Commodities: Brent crude oil futures rose 1.1% to $85, natural gas rose 1.8%, copper fell 0.5%, gold rose 0.2%, and iron ore fell 0.3% to $124. The bi-monthly GDT dairy auction resulted in an overall price rise of 2.2%, with whole milk powder up 1.5% - in line with expectations.

Overnight Currency Range

AUD/USD 0.7407 0.7485

EUR/USD 1.1609 1.1670

GBP/USD 1.3725 1.3834

USD/JPY 113.87 114.35

NZD/USD 0.7085 0.7172

USD/CAD 1.2311 1.2383

USD/CNH 6.3685 6.4287

AUD/JPY 84.62 85.54

AUD/NZD 1.0425 1.0468

AUD Thoughts

- The Australian dollar surges almost 1% as central banks around the globe normalize monetary policy.

- An upbeat market sentiment boosts the commodity currencies, like the AUD and the NZD.

- The RBA last meeting minutes confirmed that they would not hike rates to cool off the real estate market.

The AUD/USD is soaring during the New York session, gaining 0.99%, trading at 0.7484 at the time of writing. A positive market mood surrounds the financial markets, as US stock earnings ease concerns around elevated prices. The largest US stock indexes rise between 0.50% and 0.82%, while the greenback weakens across the board.

The Reserve Bank of Australia would not hike rates to cool off the real estate market. On Tuesday, the Reserve Bank of Australia unveiled the minutes of the last meeting. They said that higher interest rates would help lower upward prices in the real estate market, though it would come at the cost of fewer jobs and weaker wages growth. Furthermore, the minutes revealed that such a move would distance the bank from achieving monetary policy goals – namely, full employment and inflation around the 2-3% target. RBA policymakers have been vocal about not raising rates to help them cool off of the real estate market, as they try to increase the pace of wages growth and return inflation to the 2-3% target on a sustainable basis.

Despite the abovementioned, investors have increased the odds of a 2022 interest rate hike. The Bank of England and other developed economies see their central banks switching towards a normal monetary policy. The outcome of those bets is the price action of the day, with commodity currencies like the Australian and the New Zealand dollar printing fresh highs against the greenback.

Meanwhile, the US economic docket featured the Housing Starts and the Building Permits for September. Housing Starts rose to 1.555M lower than the 1.62M expected. In contrast, the Building Permits, which measures the construction sector, increased to 1.589M, lower than the 1.68M, due to a shortage of skilled employees and elevated raw materials costs.

In the daily chart, the AUD/USD shows the spot price is above the September 3 high at 0.7477, which supports the upward move, but it would require a daily close above it to confirm the break of structure towards the upside. n that outcome, the first resistance would be the psychological 0.7500. A breach of the latter would expose the 200-day moving average (DMA) at 0.7564, immediately followed by a downward slope trendline that confluences around the 0.7600 psychological resistance. On the flip side, failure at 0.7477 would expose the AUD/USD to downward pressure that could tumble the pair towards 0.7400 and beyond.

Event Risk Data Today

Australia: The Westpac-MI leading index fell from 1.4% in July to 0.5% in August. Delta restrictions and global uncertainty are expected to again be significant negatives in September.

Europe/UK: Annual CPI inflation in each jurisdiction is expected to be confirmed around 3%yr in September.

US: The latest Fed Beige book will provide a qualitative view of conditions across the 12 Fed districts. The FOMC’s Quarles will speak on the outlook. Bostic, Kashkari, Evans and Bullard appear too.

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