The tone was modestly upbeat but moves were minor. The S&P500 is unchanged near the all-time high, while bond yields are slightly higher. Currencies were mixed, with risk-sensitive currencies slightly outperforming. US 2yr treasury yields rose from 0.25% to 0.27%. The 10yr yield rose from 1.46% to 1.49%. Australian 3yr government bond yields (futures) rose from 0.49% to 0.50%, while the 10yr yield rose from 1.57% to 1.60%.
Commodities, Brent crude oil futures rose 0.7% to $76 – a three-year high, copper rose 2.0%, and gold fell 0.1%. Iron ore rose 1.7% to $215.
Overnight Currency Ranges
AUD/USD 0.7539 0.7599
EUR/USD 1.1911 1.1970
GBP/USD 1.3924 1.4001
USD/JPY 110.62 111.10
NZD/USD 0.6998 0.7069
USD/CAD 1.2253 1.2327
USD/CNH 6.4726 6.4948
AUD/JPY 83.52 84.14
AUD/NZD 1.0745 1.0774
AUD/USD bulls take a breather around 0.7575 as Thursday’s Asian session begins, following a three-day run-up that poked the 0.7600 threshold. The Aussie pair’s latest strength could be linked to the Fedspeak that tones down the last week’s hawkish rhetoric. It should, however, be noted that headlines concerning China and downbeat Aussie data, not to forget uncertainty over US President Joe Biden’s infrastructure spending and covid strain fears, seem to probe the bulls from time to time.
Fed rate hike expectations pushed back…
US Federal Reserve (Fed) Chairman Jerome Powell and colleagues get an upper hand in the fight to tame the rate-hike and tapering concerns. After Powell’s reaffirmation that the inflation risks are transitory, posing no major challenge to the Fed’s current policy, President and CEO of the Federal Reserve Bank of Boston Eric Rosengren expects, “most price increases will be reversed going into next year.” On the same line were comments from US Treasury Secretary Janet Yellen saying, “Most measures of inflation expectations remain well-anchored.”
It’s worth noting that Atlanta Federal Reserve President Raphael Bostic and Dallas Fed President Robert Kaplan stayed hawkish over the Fed’s next moves but got fewer accolades. Amid these plays, US rate hike expectations data suggest the first full rate increase is recently priced in at February 2023 versus December 2022 during the last week.
Elsewhere, China’s warning to the US over warships in Taiwan Strait and Sino-American trade tussles, not to forget Canberra-Beijing woes, test the risk appetite and favour US dollar buyers. Additionally, the lack of time in completing Biden’s infrastructure spending talks before the US policymakers take a recess to join the Delta Plus covid variant fears to weigh on the mood and put a bid under the greenback.
Talking about data, US PMIs were modestly strong, with Manufacturing growing more than Services, but Aussie activities eased in June, per preliminary PMI data. Against this backdrop, Wall Street closed mixed and the US 10-year Treasury yields remain firm by the end of Wednesday’s North American trading session.
Looking forward, a lack of major data/events up for publishing during the Asian session could keep AUD/USD traders troubled but the bulls may keep the reins until any major challenges to the risk appetite appears, likely from China or relating to US stimulus. AUD/USD pushed to a high of 0.7699 overnight with offering interest still expected at 0.76c and again at 0.7640 while demand remains at 0.7500.
Event Risk Data Today
Australia: the ABS will release the final update of its June Business Conditions Survey – we will be looking for any responses around the ending of JobKeeper or the impact of supply disruptions.
Germany: The IFO business climate survey is expected to advance to 100.7 in June. The manufacturing sector will remain a key driver of growth until the economic reopening fully materialises.
UK: The BoE will announce its June monetary policy decision. Policy is likely to remain on hold, and we will be watching the Bank’s assessment of risks given stronger inflation outcomes but a delayed reopening.
US: May wholesale inventories are expected to rise 0.8%, with inventories likely to be choppy over the year but positively contributing to growth. May durable goods order are set to reveal an ongoing rebound in investment (market f/c: 2.8%). The market is expecting no revisions in the third estimate of Q1 GDP (market f/c: 6.4%). Initial jobless claims should continue their established downtrend, despite last week’s tick up (market f/c: 380k). Bottlenecks and price pressures will be in focus in the June update of the Kansas City Fed Index. A raft of FOMC’s members will be speaking: Barkin, Bostic, Williams, Bullard, and Kaplan. The Federal Reserve will publish the results of its stress tests.