The recent bounce in risk appetite continuing overnight with global equities all advancing (S&P500 up over 0.6% ) on stronger US data and continued thoughts that the Omicron outbreak will prove less severe on economic activity than initially feared. Little change for US Treasuries although the USD losing ground across the board – EUR/USD to highs above 1.1330, Aud/usd to 0.7220 and NZD/USD to 0.6820 highs.
Overnight Currency Range
AUD/USD 0.7121 0.7220
EUR/USD 1.1264 1.1342
GBP/USD 1.3240 1.3362
USD/JPY 113.95 114.37
NZD/USD 0.6742 0.6820
USD/CAD 1.2837 1.2924
USD/CNH 6.3743 6.3820
AUD/JPY 81.28 82.47
AUD/NZD 1.0558 1.0593
AUD is the strongest currency on the day in a risk-on environment with US Consumer Confidence coming in higher than forecasted for December as third-quarter economic growth was revised higher. The US stock market has rallied and high beta plays are aligned positively, benefitting from the renewed enthusiasm. The Nasdaq Composite jumped 0.9% to 15,486.29 intraday, with S&P 500 up 0.8% and the Dow Jones Industrial Average 0.4% higher. All sectors were in the green, with consumer discretionary and technology leading the charge.
AUD/USD is firm, 0.9% higher around the highs of the day near 0.7217 at the time of writing. The 10-year US Treasury yield .is down 0.34% points to 1.46% and the US dollar, as measured by the DXY is down 0.39% sliding from 96.602 to a low of 96.036. US rates are starting to normalize. However, analysts suggest that the market tightening expectations for the Fed still have room to adjust; 2-year yield differentials are moving back in the dollar’s favour.
If inflation returns to the 2% target, then that implies a negative real policy rate at the end of a Fed tightening cycle, with the economy near full employment., sure there are downside risks from more variants but the rates market seems to be pricing in perfection from the Fed. The market continue to believe that markets are underestimating the Fed’s propensity to tighten, and this should lead to a further rise in US short-term rates in 2022.
The data run thinning out this coming session and into the Christmas break with November Personal Income and Spending data the potential highlight. Analysts focused on the strong momentum in the October spending data which appears to have persisted into November as high frequency spending data have shown further strength.
The relentless rally for the AUD in offshore trade has us clearing some of the recent resting offers in the 0.7200 area. Looking for further offers in the 0.7280/90 area ( the 50 and 100 day sma resistance ) although some further short covering can be expected through these levels. Bids from the recent lows nearer 0.7120.
Event Risk Data Today
JP – Nov Natl CPI y/y
IT – Dec Economic Sentiment & Consumer Confidence Index
SP – 3Q GDP q/q
CA – Oct GDP m/m
US – 18-Dec Initial Jobless Claims
US – Nov New Home Sales
US – Nov Durable Goods Orders
US – Nov Personal Income & Spending