Good Morning,
Market Headlines
Sentiment remained upbeat as a US infrastructure spending plan was agreed, the S&P500 rising 0.6% to a record high. The AUD and NZD are slightly higher, while bond yields are little changed. The US dollar index is unchanged on the day. EUR ranged sideways between 1.1918 and 1.1956. The GBP underperformed following the dovish BoE statement, falling from 1.3980 to 1.3890 before partly recovering to 1.3935. USD/JPY ranged between 110.69 and 111.00. AUD rose slightly from 0.7570 to 0.7592. NZD rose slightly from 0.7040 to 0.7073. AUD/NZD fell from 1.0745 to 1.0726 – a two-week low.
US 2yr treasury yields ranged between 0.25% and 0.27%. The 10yr yield ranged between 1.48% and 1.50%. Australian 3yr government bond yields (futures) were stuck at 0.48%, while the 10yr yield fell from 1.59% to 1.56%.
Commodities, Brent crude oil futures rose 0.5% to $76, copper fell 0.4%, and gold fell 0.3%. Iron ore fell 0.9% to $214.
Overnight Currency Range
AUD/USD 0.7566 0.7591
EUR/USD 1.1918 1.1956
GBP/USD 1.3888 1.3985
USD/JPY 110.68 111.11
NZD/USD 0.7042 0.7071
USD/CAD 1.2283 1.2341
USD/CNH 6.4642 6.4859
AUD/JPY 83.88 84.16
AUD/NZD 1.0727 1.0749
AUD Thoughts
AUD/USD struggles to add to the first weekly gain in three, easing to 0.7580 at the start of Friday’s Asian session. Even so, the Aussie pair benefits from the risk-on mood while rising for the last four days at a stretch, snapping a two-week downtrend.
The passage of US President Joe Biden’s infrastructure spending and a bit softer US data favoured the market mood and the AUD/USD prices. On the contrary, chatters over Fed’s dialling back of qualitative measures introduced during the pandemic and fears of the escalating Western tussles with China, not to forget covid variant woes, test the Aussie bulls. After haggling over months, US Senators managed to agree over the much-awaited stimulus package, backed by President Biden, ahead of a two-week holiday period. “The plan is expected to increase federal spending by nearly $600 billion but leave many of President Biden’s economic proposals, including investments in child care and much of his climate agenda, for a future bill,” said New York Times.
Also favouring to sentiment were weaker than expected prints of US Durable Goods Orders and a bit high Jobless Claims, not to forget confirmation of 6.4% US GDP. The data suggests that the world’s largest economy is hitting a plateau, easing the burden from the Fed as they battle against reflation fears and tapering talks.
Alternatively, the US Federal Reserve (Fed) recently announced that the banks pass the stress test to lift the covid-led restrictions on share buybacks after June 30. This suggests the US central bank is recalling the reliefs offered during the pandemic, an indirect way of tightening. Additionally, China’s dislike of Aussie complaints about the anti-trade behaviour of Beijing joins the US warships passing through Taiwan Straits offer extra burden on the risk appetite. It’s worth noting that the Delta Plus variant of the covid has become another strain for the traders.
Amid these plays, also the month-end and quarter-end mood, equities remained upbeat and so do the US Treasury yields. However, the US dollar index seesawed between gains and losses by the end of Thursday’s North American trading session.
Moving on, a lack of major data/events in Asia, coupled with the already witnessed outcome of US infrastructure spending and the key data of the week, AUD/USD may remain side-lined and can consolidate recent gains. However, qualitative factors become crucial to watch for fresh impulse. Offering interest still expected at 0.7600 and again at 0.7640 while demand remains at 0.7500.
Event Risk Data Today
New Zealand: The Q2 Westpac Employment Confidence index will provide a timely perspective on labour market tightness. We are looking for the trade balance surplus to rise to $469mn in May; while import values are strong, the dairy price surge will be coming through.
UK: June GfK consumer confidence is expected to improve to -7; the recent uptick in cases will provide a headwind to sentiment in the near term.
US: Personal income, which has been thrown around by the stimulus cheques, is set to decline 2.5% in May. Meanwhile, personal spending should continue to advance on the reopening, market f/c: +0.4%. In recent months, the core PCE deflator has been driven by a “reopening spike” in a subset of components. This dynamic will be at play in the May update (market f/c: 0.6%mth, 3.4%yr). The FOMC’s Mester and Rosengren will speak.