23rd February 2021 - Relentless AUD rallies to 3 year high

Good Morning,

Market Headlines

US stocks lost modest ground for the fifth consecutive day, with tech shares leading the move lower (Nasdaq -1.5%) on higher bond yields. Commodities, Brent crude futures rose +3.3% to USD61.52/bbl., Copper continued its sharp gains, rising above USD9,000/mt, within a broad rally in base metals due to tightening supply constraints. Gold also regained levels above USD1800/oz, gaining +1.4% to USD1810/oz.

Overnight Currency Ranges

AUD/USD: 0.7855 – 0.7929

EUR/USD: 1.2092 – 1.2169

GBP/USD: 1.3980 – 1.4086

USD/JPY: 104.995 – 105.84

USD/CAD: 1.2592 – 1.2654

NZD/USD: 0.7282 – 0.7343

AUD/JPY: 82.95 – 83.31

AUD/NZD: 1.0774 – 1.0800

AUD Thoughts

AUD/USD rallied to 0.7920, a fresh three-year high yesterday. Looking ahead to today, UK’s substantial furlough programme is masking the true impact of the pandemic on the UK labour market. The programme is due to end in April, though the government is under pressure to extend it through to August. Either way, the unemployment rate will like shoot higher once the government is no longer paying the majority of furloughed works wages.

In the US, Chair Powell is due a testimony to Congress in the early hours of Wednesday (Sydney time): his remarks and tone are likely to remain dovish and consistent with his recent public statements. He is likely to continue to message that it is too soon to begin discussing the timeline for tapering the pace of asset purchases.

The relentless run in the AUD/USD continued overnight as the local unit made new 3 year highs and peaked at 0.7929. Offering interest is thin up here but is expected to intensify ahead of 0.8000 while demand likely remains in the 0.7820 region.

Event Risk Data Today

NZ: Markets expect a 2% pull back in Real Retail Sales through the December quarter. For the most part, that reflects a normalisation in spending on vehicles. However, monthly spending gauges indicate that New Zealanders have continued to spend up on household durables, in part due to the continued restrictions on international travel.

UK: The ILO unemployment rate is expected to tick up to 5.1% in December. The furlough scheme continues to hold back an acceleration of job losses.

US: December FHFA house prices (market f/c: 0.9%) and S&P/CS house prices (market f/c: 1.25%) will confirm that the property market remains on a tear. Meanwhile, February Consumer Confidence should lift to 90.0, supported by fiscal prospects. The February Richmond Fed Index is set to lift to 16; the previous release showed that new orders had moderated, but the employment subcomponent expanded. At 02:00 AEDT, Fed Chair Powell will deliver the semi-annual monetary policy report.