25th August 2021 - Attentions turn to on Jackson Hole and the coronavirus Delta variant

Market Headlines

The greenback edged lower for a second consecutive day, as the market mood remained positive. Stocks gains were modest, as investors become cautious ahead of the Jackson Hole Symposium and whatever US Federal Reserve chief Powell has to say about the future of monetary policy. The timing for tapering is in the eye of the storm and Powell may disappoint investors. US 2yr treasury yields fell from 0.24% to 0.22%, while the 10yr yield rose from 1.26% to 1.29%.

Commodities, Brent crude oil futures rose 3.6% to $71, copper rose 0.5%, and gold rose 0.1%.

Overnight Currency Range

AUD/USD 0.7200 0.7271

EUR/USD 1.1727 1.1755

GBP/USD 1.3694 1.3747

USD/JPY 109.41 109.88

NZD/USD 0.6880 0.6965

USD/CAD 1.2578 1.2658

USD/CNH 6.4654 6.4855

AUD/JPY 78.98 79.73

AUD/NZD 1.0411 1.0470

AUD Thoughts

AUD/USD remains on the front foot around the weekly top, following a two-day rebound from yearly low, as picking up bids around 0.7260 during the early Wednesday morning in Asia.

Softer US Richmond Fed Manufacturing Index data for August, 9 versus 25 expected, joins the first rise in the New Home Sales in four months to weigh on the push back the Fed’s tapering concerns as policymakers brace for Jackson Hole Symposium. The mixed data currently looks at the US Durable Goods Orders for July, forecast -0.3% versus +0.9% prior, for further firming up odds favouring the need for easy money policies.

Elsewhere, the US House of Representatives passed a $3.5 trillion budget and is progressing on the $1.2 trillion infrastructure plan, which in turn boosts the stimulus hopes.

It’s worth observing that the recent softening of the US data pushes back the Fed’s tapering concerns and exerts downside pressure on the US Dollar, helping the equities, commodities and Antipodeans like AUD/USD in turn. However, markets remain cautious ahead of the annual speech of Fed Chair Jerome Powell at the Jackson Hole Symposium, on August 27.

Looking forward, comments from RBA Assistant Governor (Economic) Luci Ellis and Australia’s Q2 Construction Work Done, market consensus 2.5% versus 2.4% previous readouts, will act as immediate catalysts wherein the AUD/USD trades will look for more positives. However, major attention will be paid to the sentiment-related factors and the US Durable Goods Orders.

A daily closing beyond October 2020 tops near 0.7245 enable AUD/USD bulls to battle July’s low surrounding 0.7290. Also acting as the near-term key resistance is a downward sloping trend line from June 25, surrounding 0.7335. Meanwhile, the pair’s declines below 0.7245 may take a breather around October 26, 2020, swing high close to 0.7180 before dropping towards the yearly bottom of 0.7105.

Event Risk Data Today

Australia: Markets expects Q2 construction works done to lift 0.9%, with gains supported by housing and public works. Housing is responding to record low rates, the HomeBuilder program and a shift in spending to renovations with the national border still closed. Public works is lifting as governments commit to new projects - as part of the stimulus package.

New Zealand: Markets are forecasting the July trade balance to dip to -$390m, driven by robust imports whilst exports ease after a strong June.

Germany: The July IFO business climate survey will be watched closely to gauge the impact of supply constraints and still-elevated infections on business sentiment (market f/c: 100.2).

US: Durable goods orders are likely to moderate in July, with softer results for aircraft and defence orders to be partly offset by an uptick in vehicle orders (market f/c: -0.3%).

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