Markets remained upbeat overnight, amid mostly dovish Fedspeak. The S&P500 is up 0.5% and near the all-time high, while the defensive US dollar weakened for a second consecutive day. Bond yields fell slightly. US 2yr treasury yields fell from 0.26% to 0.23%. The 10yr yield fell from 1.50% to 1.46%. Australian 3yr government bond yields (futures) slipped from 0.53% to 0.50%, while the 10yr yield slipped from 1.64% to 1.60%.
Commodities, Brent crude oil futures rose 0.1% to $75, copper rose 1.2%, and gold fell 0.3%. Iron ore rose 3.8% to $212.
Overnight Currency Ranges
AUD/USD 0.7495 0.7564
EUR/USD 1.1881 1.1952
GBP/USD 1.3860 1.3963
USD/JPY 110.22 110.79
NZD/USD 0.6963 0.7035
USD/CAD 1.2306 1.2403
USD/CNH 6.4631 6.4865
AUD/JPY 82.80 83.65
AUD/NZD 1.0745 1.0786
AUD/USD begins Wednesday’s Asian session with a pullback to 0.7543, around 0.7551 by the press time, after rising for two consecutive days. While the latest moves could be termed as consolidation the earlier run-up takes clues from the US Federal Reserve (Fed) official’s comments, mainly by Chairman Jerome Powell.
Fed tones down rate-hike, tapering jitters…
Not only Fed Chair Powell but others from the US central bank team also conveyed a hesitant acceptance to the inflation fears that don’t back consensus, amid employment challenges, favouring monetary policy adjustments. Powell’s comments suggesting the way out of the transitory inflation fears in a year and shortfalls in unemployment cooled down the market bulls. Earlier in the day, Cleveland Fed President Loretta Mester and New York Fed President John Williams already cited employment as the hurdle to think before signaling any action. On the contrary, San Francisco Fed President Mary Daly hints at tapering to begin this year or the next.
On the same line, notable progress in the negotiations concerning US President Joe Biden’s infrastructure spending plan also favoured the market sentiment and underpinned Antipodeans versus the greenback.
It’s worth noting that comments from China’s Global Times (GT) suggesting the “make or break” situation of the Sino-American trade talks preceded the fears of further trade tension due to Beijing’s inability to import agreed US goods again in May. Also on the negative side could be the fears of another variant of the coronavirus (COVID-19), known as Delta Plus.
Additionally, China’s watch on iron ore, Australia’s key export item, dragged down Dalian Iron Ore futures and probed the AUD/USD bulls. Against this backdrop, Wall Street benchmarks posted mild gains whereas the US 10-year Treasury yields dropped 1.8 basis points (bps) to 1.467% by the end of Tuesday’s North American trading session.
Moving on, a lack of major data/events may test AUD/USD recovery from the yearly lows ahead of the initial activity numbers from the US. Also important are the headlines concerning US stimulus, covid and US-China trade relations.
AUD/USD bounced meaningfully out of yesterday’s low of 0.7495 to trade to a high of 0.7564 late in the session. Offering interest is still expected ahead of 0.7600 while demand has likely followed spot higher and rests ahead of 0.7500
Event Risk Data Today
US existing home sales fell 0.9% in May (estimate -2.1%) – the fourth consecutive monthly decline, as headwinds from inventories and prices continue to weigh. The median sales price rose further to $350,300 – a fresh record high. Richmond Fed manufacturing survey rose from 18 to 22 (estimate 18) – the highest level since October (29 is the all-time high). The components were mixed, although consistent with the many crosscurrents affecting manufacturing, supply chain disruptions, labour issues, and rising commodity and input prices.
Fed speakers included Chair Powell’s testimony to Congress, where he reiterated familiar themes such as transitory inflation. Williams repeated his expectation the labour market has a long way to go before normalising. Daly said the economy has not yet normalized, and Mester said the FOMC is not yet ready to reduce accommodation.