23rd July 2021 - Looks set to regain 0.7400 on softer USD, bears not out of the woods

Market Headlines

Equity markets and commodities rose further, the S&P500 currently up 0.2%. Bond yields are slightly lower, though, following a dovish ECB statement. Currencies were mixed, the AUD and NZD slightly firmer. US 2yr treasury yields fell from 0.22% to 0.20%, while the 10yr yield fell from 1.30% to 1.23%. Brent crude oil futures rose 2.0% to $74, copper rose 1.5%, and gold rose 0.2%. Iron ore fell 4.0% to $201.

Overnight Currency Range

AUD/USD 0.7343 0.7397

EUR/USD 1.1757 1.1831

GBP/USD 1.3691 1.3787

USD/JPY 110.02 110.36

NZD/USD 0.6947 0.6986

USD/CAD 1.2530 1.2594

USD/CNH 6.4639 6.4775

AUD/JPY 80.82 81.47

AUD/NZD 1.0554 1.0598

AUD Thoughts

AUD/USD picks up bids to 0.7384, printing three-day recovery from year’s low, amid early Friday morning in Asia. Although the US dollar pullback and cautious optimism in the markets helped the quote to gain the most among G10 currency, the Aussie pair stays on the way to print a fourth weekly loss amid the coronavirus concerns. A gradually firming hope of getting US President Joe Biden’s infrastructure spending passed through the Senate joins a bit relief to the policymakers in deciding the debt ceiling seems to pave the way for the market’s somewhat brighter mood despite the covid woes.

Although US Senators pushed back the infrastructure spending vote to Monday, Democrats are too optimistic and are ready to work over the weekend to get their leader’s plan passed. On the other hand, the US Congressional Budget Office (CBO) said, per Bloomberg, “US lawmakers likely have until October or November to raise or suspend the debt limit.” This will avail the American diplomats a bit more time than the July 31 deadline when the debt limit will be $22 trillion for the last time, set in 2019.

Elsewhere, the European Central Bank (ECB) matched wide market expectations of keeping the monetary policy unchanged with dovish forward guidance, suitable to the new inflation targeting method. While the same helped the US dollar to recover early Thursday losses, the greenback couldn’t gain much against Antipodeans than the EUR.

On the contrary, Australia’s largest daily infections since September 2020 and a surprise spike in the US Jobless Claims seem to challenge the sentiment. Also, the escalating US-China tussles, amid American support to Canberra’s trade dispute with Beijing, China’s National Security Law action in Hong Kong and US ties with Taiwan, add pressure on the market’s mood and the AUD/USD prices due to its risk barometer status.

Amid these plays, Wall Street registers the least daily gains in three days whereas the US 10-year Treasury yields eased to 1.27%.

Looking forward, Commonwealth Bank (CBA) PMIs for July will be the immediate catalysts for AUD/USD ahead of the US initial activity data for the said month. It should be noted that RBA Governor Philip Lowe was to speak around 22:45 GMT of Thursday, Friday for Asia, but the event was postponed by the organizers, due to the covid outbreak, to unspecified time and hence it becomes a surprise. Even so, the quote remains on the bear’s table as the Delta covid variant has started fuelling the death toll

AUD/USD consolidated its short term gains overnight on its way to a high of 0.7397. Demand remains toward the recent lows at 0.7290/.7300 while offering interest should materialise as we approach 0.7420 and expect that broader range should contain us into next week

Event Risk Data Today

AU: Commonwealth Bank (CBA) PMIs for July

Europe: Markit manufacturing and services PMIs are due for the Euro Area, Germany, and the UK.

UK: Retail sales are expected to dip 0.1% in June; some switching to services spending should occur as the reopening progresses. July GfK consumer sentiment will be supported by the relaxation of restrictions, but the accompanying lift in cases may test confidence (market f/c: -8).

US: Both the Markit manufacturing (market f/c: 62.0) and services (market f/c: 64.5) PMIs are at or near record highs. As we move from the rebound phase to a more sustainable expansion, these elevated reads will balance out.

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