Markets were more upbeat overnight, after a three-day long risk-averse reaction to last week’s hawkish Fed shift. The S&P500 is up 1.4%, bond yields are higher, and the US dollar is lower. Interest rates: US 2yr treasury yields traded around 0.26%. The 10yr yield bounced off 1.35% (a four-month low) to 1.49%. Australian 3yr government bond yields (futures) drifted 2bp higher to 0.54%, while the 10yr yield rose from 1.52% to 1.60%.
Commodities, Brent crude oil futures rose 1.9% to $75, copper rose 0.6%, and gold rose 1.1%. Iron ore fell 5.1% to $204.
Overnight Currency Ranges
AUD/USD 0.7478 0.7546
EUR/USD 1.1848 1.1921
GBP/USD 1.3786 1.3936
USD/JPY 109.72 110.33
NZD/USD 0.6935 0.6999
USD/CAD 1.2355 1.2485
USD/CNH 6.4527 6.4719
AUD/JPY 82.14 84.48
AUD/NZD 1.0767 1.0797
AUD/USD bulls await fresh clues to extend the recovery moves from the yearly low around 0.7550 during the early Tuesday morning in Asia. The Aussie pair not only began the week on the front foot to rebound from a six-month low but also snapped a four-day downtrend, not to forget posting the heaviest daily gains in two weeks, amid risk-on mood. While the economic calendar wasn’t so encouraging its seems the Federal Reserve (Fed) speakers, commonly known as Fedspeak, played their part to restore the market’s optimism.
Fedspeak is the key…
Fed Chairman Jerome Powell’s prepared remarks for today’s Testimony confirm the market expectations that the policymaker terms inflation risk as transitory and causing no major challenges to the present monetary policies. The Fed Boss also flaunts the availability of tools with the US central bank if needed to use. On the other hand, New York Fed President John C. Williams takes multiple turns in his latest speech that recently mentioned that Fed is talking about talking tapering. Dallas Fed President Robert Kaplan was on the same line while favouring “taking the foot off the accelerator sooner rather than later.”
Global markets cheered the Fed policymakers’ efforts to placate rate hike woes during the first day of the week. The upbeat market mood also gained support from progressing talks over the US President Joe Biden’s infrastructure spending and upbeat Chicago Fed National Activity Index, from downwardly revised -0.09 to +0.29 in May.
It’s worth noting that the preliminary readings of Aussie Retail Sales for May eased below market consensus and prior to 0.1% whereas the People’s Bank of China (PBOC) kept its benchmark rate unchanged the previous day. Both these events failed to offer any notable moves of the AUD/USD prices.
Looking forward, a lack of major data will push AUD/USD traders to recall Fedspeak and search for sentiment-related headlines for fresh impulse ahead of the US session. Following that, US Existing Home Sales for May and Richmond Fed Manufacturing Index for June may entertain market players ahead of Fed Chair Powell’s testimony. As the prepared remarks have already backed the major consensus of no surprises, the US dollar pullback may extend should Powell chose to keep taming the policy hawks.
AUD/USD traded firmly in offshore trade, helped mostly by the weaker USD and improved risk sentiment. Offering interest is still expected ahead of 0.7550 and again at 0.7600 while demand should materialise as we approach the end of the local financial year with further support in the 0.7480 region.
Event Risk Data Today
Australia: Weekly payrolls for the week ending June 5 will give insights into the impact of the Victoria lockdown on the labour market.
New Zealand: Since our previous Westpac McDermott Miller Consumer Confidence survey, the recovery in the domestic economy has been gaining traction. That includes a firming in the household sector, with increases in household spending and a strengthening in the labour market. We’ve also had the release of the Government’s Budget, which included the announcement of a significant increase in benefit levels. The Q2 survey was conducted between June 1 and 12.
Euro Area: June consumer confidence has recently pushed above pre-Covid levels. The index should continue to firm as the recovery materialise.
US: The market will be looking for input cost and selling price pressures in the June Richmond Fed index. May existing home sales are expected to decline 2.2%, with low supply and elevated prices restraining turnover. Fed Chair Powell will testify to Congress on the Covid response and recovery, and the FOMC’s Williams, Mester and Daly will speak.