25th February 2021 - AUD supported above the 0.7900 level amid cocktail of fundamental positives

Good Morning,

Market Headlines

Markets were in a positive mood, helped by Fed Chair Powell’s repeated message that the Fed will remain accommodative for a long time. The S&P500 is up 1.1% currently. Bond yields and commodity currencies are also higher. US 2yr treasury yields rose from 0.11% to 0.13%, and the 10yr yield rose from 1.33% to 1.43% - a fresh high since February 2020 – before consolidating. Australian 3yr government bond yields (futures) rose from 0.26% to 0.27%, the 10yr yield from 1.60% to 1.72% - the highest since March 2020.

Commodities, Brent crude oil futures rose 2.8% to $67.20 – a 12-month high, copper rose 3.0% - a 9-year high, and gold fell 0.4%.

Overnight Currency Ranges

AUD/USD 0.7896 0.7949

EUR/USD 1.2109 1.21745

GBP/USD 1.4083 1.4240

USD/JPY 105.185 106.105

NZD/USD 0.7317 0.7410

USD/CAD 1.2527 1.2598

USD/CNH 6.4410 6.4646

AUD/JPY 83.18 84.12

AUD/NZD 1.0758 1.0765

AUD Thoughts

Local calendar will be highlighted by the private CAPEX data due at 11.30am, which provides firms’ estimates for the current fiscal year and their first estimate for planned capex in 2021-22. Tonight the economic calendar is busy out of the US which will catch the attention of markets.

AUD/USD traded in a 0.7896/.7649 range yesterday with all key technical levels remaining in place. Support at 0.7820 should provide significant downside support while offering interest ahead of 0.8000 should prove difficult to fill on the first attempt.

Event Risk Data Today

Australia: Market expects that Q4 private business capex will fall 1.8%. Underlying this, markets anticipate a -2.2% for buildings and structures, with downside risks given the sharp declines in approvals and commencements. Expectations of a -1.5% for equipment - with risks lying in both directions. Businesses are upbeat, uncertainty has decreased and supply lines have improved - however, for most, excess capacity remains. Capex plans, which will include Est 5 for 2020/21, as well as Est 1 for 2021/22 (with the initial estimate often unreliable). Est 1 to print at $94bn, and an Est 5 of $119bn is arguably plausible - that's a 3% upgrade on Est 4 and some -9% vs Est 5 a year ago. It should be noted that the survey’s coverage is being expanded to include education and health, which may lead to some variation.

New Zealand: The preliminary results of the February ANZ business outlook survey revealed small increases in both business confidence and expectations for activity over the coming months. We don’t expect much change in the headline figures when the final results of the February survey are released. RBNZ Governor Orr presents the MPS to a Parliamentary Select Committee, with Q&A.

Euro Area: January M3 money supply growth will remain elevated on the ECB’s commitment to financial accommodation (market f/c: 12.5%yr). Economic confidence is expected to edge up to 92.0 in February, but the slow vaccine rollout and ongoing lockdowns remain a damper.

US: Market expects that the second estimate of Q4 GDP will be revised up 0.2ppts to 4.2%. Flash GDP pointed to strong business investment, which should lead a robust rise in January durable goods orders (market f/c: 1.0%). January pending home sales are expected to remain flat after a modest 0.3% contraction in December. Initial jobless claims will be released for the week ended Feb 20; recent increases indicate that the labour market is set for a protracted recovery (market f/c: 825k). The Kansas City Fed Index is expected to moderate to 15, but remain well above pre-COVID levels. The FOMC’s Bostic (03:00 AEDT), Bullard (02:30 AEDT), Quarles (03:10 AEDT) and Williams (07:00 AEDT)

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