21st October 2021 - AUD/USD soars to fresh four-month highs above 0.7500.

Market Headlines

Sentiment remained upbeat, with US equities rising further, the S&P500 up 0.3% on the day and near the record high. Risk-sensitive currencies continued to outperform, while bond yields fell slightly.US 2yr treasury yields fell from 0.40% to 0.37%, while the 10yr yield fell from 1.66% to 1.62%. Markets are pricing the first Fed funds rate hike to be in November 2022. Australian 3yr government bond yields (futures) fell from 0.96% to 0.91%, while the 10yr yield fell from 1.83% to 1.78%. Markets are pricing the first RBA rate hike to be in September 2022.

Commodities, Brent crude oil futures rose 0.7% to $86, natural gas rose 1.9%, copper rose 0.9%, gold rose 0.9%, and iron ore fell 0.4% to $123.

Overnight Currency Range

AUD/USD 0.7465 0.7522

EUR/USD 1.1617 1.1658

GBP/USD 1.3745 1.3832

USD/JPY 114.08 114.69

NZD/USD 0.7147 0.7208

USD/CAD 1.2308 1.2368

USD/CNH 6.3733 6.395

AUD/JPY 85.37 85.96

AUD/NZD 1.0425 1.0453

AUD Thoughts

- AUD/USD soars to fresh four-month highs above 0.7500.

- Risk-on market appetite boosts risk-sensitive currencies like the AUD and hurts safe-haven peers like the USD and the JPY.

- High Australian 10-year bond yields boost the AUD, despite RBA signals to not hike rates until 2024.

The AUD/USD climbs to four-month fresh highs, up 0.54%, trading at 0.7514 during the New York session at the time of writing. Positive market sentiment surrounds the financial market, even though the Federal Reserve’s imminent bond taper announcement and higher energy prices. Major European and US stocks indices soar, while the CBOE Volatility Index (VIX) dropped to 15.7, near the lowest since February 2020. Meanwhile, the US Dollar Index that measures the greenback’s performance against a basket of six rivals edged lower 0.13%, sits at 93.66, contrarily to the US 10-year Treasury yield, rises one basis point, is currently at 1.635%.

The AUD/USD pair has risen more than 1% since the beginning of the week, in line with investors’ risk appetite. Although the Reserve Bank of Australia (RBA) signalled that a rate hike would not come until 2024, the market expectations are others. On Tuesday, the New Zealand CPI reading reached a 10-year high, triggering a jump on the New Zealand 10-year yield up to 2.40%, whereas the Australian 10-year coupon rose to 1.86%.

Furthermore, positive news on the COVID-19 front is that Melbourne welcomes vaccinated Sydney residents without quarantine, so as the country eases lockdowns, the economic recovery would not be jeopardized.

On the macroeconomic front, the Australian economic docket is absent. Concerning the US economic docket, the EIA Crude Oil Stocks change for the week ending in October the 15, stockpiles declined by 0.4 million barrels, triggering a slight jump in WTI prices. Moreover, Federal Reserve Vice-chair Randal Quarles will cross the wires, offering fresh impetus for AUD/USD traders.

The AUD/USD pair broke the resistance at 0.7477, closing to the 200-day moving average (DMA) lying at 0.7563. However, as the Relative Strength Index (RSI) is at 72 in overbought levels, the AUD/USD might consolidate before resuming the upward trend. As the pair heads north, the first resistance would be the 200-DMA at 0.7563. A break of the latter could open the door for a test of the confluence of a downward slope trendline coupled with the June 25 high around the 0.7616 area, followed by the June 11 high at 0.7775.

On the flip side, failure at 0.7500, AUD/USD traders will find 0.7477 as its first support. A breach of that level could push the pair towards the 100-DMA at 0.7404, immediately followed by the October 13 low at 0.7323.

Event Risk Data Today

Australia: Payrolls for the week ending 25 September will provide a first view of the state and national labour markets as lockdown’s end came into view.

Europe: Consumer confidence has been on an upward trend in 2021 as the Continent’s economies re-opened and risks abated.

United States: Initial jobless claims are back at pre-pandemic levels and are expected to stay there. A robust gain in existing home sales is forecast in September, although deficient supply remains a material risk for sales activity. The September leading index and October Phily Fed survey are also due, while the FOMC’s Waller will speak on the US economy.

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