Bond yields rose slightly after a fall in US jobless claims and the on-hold ECB decision. Equities are little changed, although the S&P500 did make an intraday record high. The USD weakened slightly. Commodities, Brent crude oil futures fell 0.1% to $56.05, copper rose 0.2%, iron ore rose 1.0% to $170.30, and gold fell 0.2%.
Overnight Currency Ranges
AUD/USD: 0.7742 – 0.7784
EUR/USD: 1.2115 – 1.2173
GBP/USD: 1.3693 – 1.3745
USD/JPY: 103.33 – 103.66
USD/CAD: 1.2591 – 1.2648
NZD/USD: 0.7178 – 0.7223
AUD/JPY: 80.16 – 80.49
AUD/NZD: 1.0769 –1.0789
AUD/USD moved higher during Thursday’s Asia pacific hours, seemingly deriving something of a boost from a solid December Aussie labour market report, as well as from overarching USD weakness. The pair rallied from around 0.7740 to highs in the 0.7780s but has since come off the boil a little amid a more cautious/mixed feel to trade on the day. At present, the pair trades in the 0.7750s, with gains on the day now standing at only just over 0.1% or around 10 pips.
AUD/USD is higher on Thursday on account of the softer US dollar but is not outperforming most of its other G10 counterparts. Indeed, it is hard to argue that broader market sentiment is “risk-on” on Thursday (which would be conducive to AUD outperformance versus it’s G10 peers), given that US equities are barely higher, crude oil markets a little lower, industrial metal prices are mixed and gold a little lower. Typically, one would see AUD outperformance primarily when these risk assets are all rallying together.
Post local employment numbers yesterday the market feels that the unemployment rate will continue its descent, noting that job vacancies have continued to rise suggesting labour demand remains high, so you would expect employment to continue to recover towards pre-virus levels in the months ahead. The RBA has previously said that a “better than expected labour market performance would weaken the case for extending its asset purchases”. Given that the RBA’s last set of forecasts showed the unemployment rate rising to a new peak of 8% in Q4 of 2020, it’s clear that the labour market has surprised to the upside... (and) on that basis you would expect the RBA to end QE when the current purchases end in April.
The AUD/USD traded in a tight 0.7742/0.77845 range yesterday with offering interest still expected ahead of the recent highs of 0.7820 while demand rests back toward 0.7700 and again at 0.7640.
Event Risk Data Today
New Zealand: Following a strong lift in November, the December manufacturing PMI will be released. Market expects that Q4 CPI Inflation will come in at 0.2% m/m and 1.1% y/y
Europe: January Markit Manufacturing and Services PMIs will be published for the Euro Area, Germany, and the UK.
UK: December Retail Sales will be hampered by lockdowns over the holiday period. Meanwhile, December Public Sector Borrowing will remain elevated as the stimulus continues.
US: Both the January Markit Manufacturing (market f/c: 56.5) and Services (market f/c: 54.0) PMIs are set to moderate in the face of rising case counts, labour market headwinds, and a slow start to the vaccine rollout. Existing home sales have been robust ahead of the December update, but have eased off a peak in October (market f/c: -2.1%).