22nd July 2021 - AUD/USD: Recovery remains capped around 0.7350 on mixed sentiment

Market Headlines

The risk-seeking mood continued, helped by corporate earnings reports. The S&P500 is currently up 0.7%, and commodities, bond yields, and risk-sensitive currencies are higher. US 2yr treasury yields rose from 0.19% to 0.21%, while the 10yr yield rose from 1.19% to 1.30%. Commodities, Brent crude oil futures rose 4.0% to $72 on sentiment plus an inventory update, copper rose 0.4%, and gold fell 0.3%. Iron ore fell 3.3% to $210.

Overnight Currency Range

AUD/USD 0.7289 0.7362

EUR/USD 1.1752 1.1805

GBP/USD 1.3592 1.3722

USD/JPY 109.80 110.38

NZD/USD 0.6894 0.6977

USD/CAD 1.2526 1.2730

USD/CNH 6.4615 6.4866

AUD/JPY 80.05 81.19

AUD/NZD 1.0546 1.0602

AUD Thoughts

AUD/USD fades bounce off seven-month low to begin Thursday’s Asian trading with a 15-pip drop to 0.7345, down 0.05% around 0.7355 by the press time. The risk barometer refreshed the yearly low, before snapping a four-day losing streak, the previous day. While there haven’t been any major positives, consolidation and upbeat earnings seem to prepare markets for another fall.

Bears taking a breather, not out of woods, although market sentiment improved on Wednesday, a lack of fundamentals to back the recovery raise doubts about the AUD/USD pair’s recovery. Over half of Aussie states are under lockdown and some among them, like New South Wales and Victoria, mark a notable jump in infections, magnifying the Delta covid variant fears. That said, Australia’s daily count of new confirmed cases, per ABC News, jumped to the new high since September 2020, at 141, after declining in the previous three days.

On the other hand, the US Senators voted 51-49 to block a debate on President Joe Biden’s Infrastructure Spending Bill. The policymakers were up for a procedural vote on the much-awaited stimulus today.

Alternatively, US equities marked another positive day, also took Treasury yields with them, as bulls are likely convinced that the global policymakers may battle the pandemic. This is somewhat on the line of World Health Organisation (WHO) head Tedros Adhanom Ghebreyesus who said, per Reuters, “The world's leading economies could bring the covid-19 pandemic under control in months.”

Looking forward, National Australia Bank’s (NAB) Business Confidence for the second quarter (Q2), expected 21 versus 17, will decorate the Asia-Pacific calendar ahead of the key European Central Bank (ECB) monetary policy meeting. While the Aussie data may not meet the positive mark and can disappoint the latest hopes, any positive surprises can help AUD/USD to battle the near-term important resistance around 0.7410-15. On the contrary, the ECB’s likely dovish stand may renew the US dollar’s upside momentum and can weigh on the quote afterward. Above all, the covid updates and US policymakers’ discussion on the budget will be the key.

AUD/USD finally found a base at 0.7290 overnight with demand expected to grow in that area while offering interest is still thick and staggered between 0.7400 and 0.7500

Event Risk Data Today

Australia: ABS Weekly payroll jobs for the week ending June 3 will provide insight into the response to the early stages of Sydney’s lockdown.

Euro Area: The ECB will deliver its July policy decision. President Lagarde has signalled that this meeting will be significant. In light of its new monetary policy framework, the Governing Council is set to review and recalibrate its communication style and its forward guidance. This may also include a decision around the future of emergency policy instruments, namely the Pandemic Emergency Purchase Program (PEPP). Consumer confidence is likely to advance again in June on the continued reopening; the spread of the delta variant may serve as a headwind in coming months (market f/c: -2.6).

US: June existing home sales will provide an update on the state of the US housing market – turnover has moderated in recent months on lower inventory and higher prices, but building activity has remained robust (market f/c: 1.7%). Declining initial jobless claims are likely to be one of the main drivers of the June leading index (market f/c: 0.9%). The market is looking for initial jobless claims to edge down to 350k in the week ended July 17, with the downtrend likely to accelerate as unemployment benefits roll off. The Chicago Fed activity index indicates that growth is firmly above trend, but that pace will begin to moderate as we move from recovery to a more balanced expansion (market f/c: 0.3). The July Kansas City Fed index will provide a timely update on the status of bottlenecks and upstream price pressures (market f/c: 25)

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