Markets remained upbeat, pushing the S&P500 1.3% higher to a record high. AUD and NZD also rose, while bond yields were little changed. Joe Biden was inaugurated as US President, and Canada’s central bank left its policy rate unchanged. Although the statement recognised the potential positives from vaccination, there was a clear intention to maintain policy support until the Covid impaired economy is fully repaired. The statement also referred to USD weakness and commodity strength as lifting the CAD. Governor Macklem did cite the CAD rise as a risk and that further appreciation would create a headwind for the economy.
Commodities, Brent crude oil futures rose 0.8% to $56.35, copper rose 0.4%, iron ore fell 0.6% to $168.60, and gold rose 1.6%.
Overnight Currency Ranges
AUD/USD: 0.7721 – 0.7760
EUR/USD: 1.2077 – 1.2158
GBP/USD: 1.3623 – 1.3720
USD/JPY: 103.45 – 103.83
USD/CAD: 1.2716 – 1.2764
NZD/USD: 0.7129 – 0.7174
AUD/JPY: 80.07 – 80.34
AUD/NZD: 1.0804 –1.0839
- AUD/USD is rangebound just to the south of 0.7750 mark ahead of key December jobs data at 00:30GMT.
- AUD/USD saw upside in line with other risk-sensitive currencies such as CAD and NZD.
- The Aussie has ridden a wave of “risk-on” that sent major US equity bourses to all-time.
AUD has ridden a wave of “risk-on” that sent major US equity bourses to all-time highs (driven primarily by gains in tech stocks) and also sent most commodity prices higher. Markets do not fit the typical description of risk on, however; the Dollar Index trades flat (normally in risk-on conditions it would be a little lower), small-cap and value stocks have fallen (not what you would typically see on a day being driven by “stimulus hopes”) and crude oil is flat.
So net-net, it has been a bit of a weird day and thus it is hard to pinpoint on exactly what has been driving sentiment. The key fundamental news of the day is, of course, the end of the Trump era and the beginning of Joe Biden’s first term as US President. The inauguration went by without any drama and did not move markets. Much more interesting from a market perspective is still what US Treasury Secretary nominee Janet Yellen said in her testimony to Congress on Tuesday; she called for unprecedented levels of stimulus spending, endorsing President Biden’s $1.9T rescue package and subsequent recovery package.
If the Biden administration can deliver on its promises regarding stimulus (debatable as to how much of that initial $1.9T package he is going to get Congress to approve), then this will be expected to send the US economy into “overdrive”, which is likely to then boost the global economy by boosting US import demand. Australia stands to be one of the big beneficiaries of a stronger rebound in global growth and trade conditions and not to mention also stands to benefit from any further commodity price inflation US stimulus brings about. Most analysts expect AUD’s path remains to the upside in the coming months.
AUD remained bound by its recent ranges overnight before settling at 0.7740 in late trade. Offering interest is expected to be thick ahead of the recent double top at 0.7820 while demand is expected to be plentiful if we dip back to 0.7640.
Event Risk Data Today
Australia: Ahead of the January update, MI inflation expectations have remained persistently below pre-COVID levels. The ABS will release the December Employment Data market consensus is 50k, which should offset a rise in participation and see the unemployment rate fall to 6.7%.
New Zealand: Following a soft print in Q3, the Q4 update of the employment confidence index will be published. Meanwhile, net migration numbers for November will be muted with borders remaining closed.
Euro Area: The ECB will announce its January policy decision. No changes are expected following the major recalibration in December.
US: The market will closely watch Initial Jobless Claims (for week ended 16/1) to confirm whether last week’s spike signaled a deteriorating trend. December housing starts (market f/c: 1.1%) and building permits (market f/c: -2.1%) should remain robust against the backdrop of a strong property market.