US equity markets rose for a fifth consecutive day, the S&P500 up 0.3% to a fresh record high. Concerns about Covid and Fed tapering receded further. Commodities and bond yields rose, and risk-sensitive currencies outperformed defensive ones. US 2yr treasury yields ranged between 0.24% and 0.25%, while the 10yr yield rose from 1.28% to 1.35%.
The US dollar index is down 0.1% on the day, with defensive currencies again performing worst. EUR rose from 1.1726 to 1.1774. USD/JPY rose from 109.70 to 110.12. AUD rose from 0.7237 to 0.7280. Outperformer NZD rose from 0.6930 to 0.6983. AUD/NZD fell from 1.0440 to 1.0423.
Commodities: Brent crude oil futures rose 1.8% to $72, copper rose 0.3%, and gold rose 0.7%. Iron ore rose 4.2% to $135.
Overnight Currency Range
Currency Pair Low High
AUD/USD 0.7237 0.7280
EUR/USD 1.1726 1.1775
GBP/USD 1.3725 1.3767
USD/JPY 109.90 110.12
NZD/USD 0.693 0.6983
USD/CAD 1.2588 1.2643
USD/CNH 6.4682 6.4865
AUD/JPY 79.35 80.07
AUD/NZD 1.0424 1.0459
Global risk sentiment remains elevated and could lift the AUD further to the 0.7300 area.
The next part of Australia’s GDP puzzle is released within Capex data later this morning. Markets have assumed a 1% q/q rise in private capital expenditure in Q2, allowing for the fact that the non-residential construction component of this release was significantly stronger than the national accounts equivalent in Q1.
The key component of the capex release is expected to be machinery and equipment, which markets expect to have risen by a solid 2% q/q. Firms will also provide updated estimates of their capital expenditure for the 2021-22 financial year. Third estimates usually entail noticeable upgrades, averaging +11.5% for non-mining capex and +9% for mining capex over the past ~20 years. Markets are not expecting such large upgrades today because firms were surveyed through July/August when business confidence declined amid the current COVID outbreaks in Australia. All up, markets are expecting the third estimate of 2021-22 capex to be around $124b, up from the second estimate of $113.6b.
Markets are also expecting that Jay Powell will augur a coming tapering by emphasizing ‘progress’ rather than the ‘risks’ toward reaching the Fed’s goals. FDA approval of Pfizer’s shot and widening vaccine mandates have likely tilted the Fed’s view away from the risks, anew.
AUD/USD peaked at 0.7280 overnight with offering interest expected ahead of 0.7300 while demand should materialise if we back to 0.7110.
Event Risk Data Today
Australia: Apart from Capex data as mentioned we also have the latest fortnightly read for payrolls which will be released today.
US: Q2 GDP is expected to only be revised at the margin (if at all) in its second estimate. Initial claims should also edge lower, though delta is a clear risk to that view. Finally, the Kansas City Fed index will provide yet another regional view of manufacturing in the US.