26th November 2021 - AUD/USD remains sidelined after dropping to the lowest levels since September

Market Headlines

In a quiet session, given the US holiday, AUD and NZD probed slightly lower. The Eurostoxx50 closed up 0.4%. Sweden’s central bank kept its policy rate unchanged. The physical US treasury bond market was closed, but futures equivalents were open. Implied 10yr yields remained around 1.63%. Markets are fully pricing the first Fed funds rate hike to be in August 2022. Australian 3yr government bond yields (futures) rose from 1.20% to 1.23%, while the 10yr yield slipped from 1.90% to 1.87%. Markets fully price the first RBA rate hike to be in July 2022.

Commodities: Brent crude oil futures fell 0.1% to $82, copper fell 0.5%, gold rose 0.1%, and iron ore fell 2.9% to $101.

Overnight Currency Range

AUD/USD 0.7180 0.7208

EUR/USD 1.1200 1.1230

GBP/USD 1.3307 1.3353

USD/JPY 115.25 115.45

NZD/USD 0.6845 0.6893

USD/CAD 1.2641 1.2675

USD/CNH 6.3866 6.3958

AUD/JPY 82.76 83.19

AUD/NZD 1.0456 1.0503

AUD Thoughts

The AUD/USD is grinding lower versus the greenback, down 0.15%, and trading at 0.7188 during the day at the time of writing. The market sentiment as the European session advances is upbeat, as European indices are in the green, despite thin liquidity conditions, attributed to the Thanksgiving celebration in the US. A critical development is Europe becoming the new COVID-19 epicenter, with cases rising at record levels. Countries like Slovakia, the Czech Republic, Netherlands, and Hungary reported new highs in daily infections as winter approaches. Added to Austria − that reimposed a two-week lockdown− there is now Germany, which started to impose tighter rules amid the country’s worst COVID-19 surge.

In the overnight session, the AUD/USD pair traded sideways within the 0.7170-0.7200 range, with a light economic docket our of Australia. The Private Capital Expenditure for the Third Quarter, which shrank 2.2%, more than the 2% contraction estimated by analysts, did not have any meaningful impact on the AUD/USD pair. On the US front, the observance of Thanksgiving would not offer new macroeconomic data until the following week.

On Friday, the economic docket for Australia will feature the Retail Sales for October. That data, alongside US dollar dynamics and market sentiment, will be the factors that could move the AUD/USD pair. The AUD/USD has a downward bias, as the daily moving averages (DMA’s) are well located with a downslope above the spot price. Also, the break of an upslope trendline on last week’s Friday, followed by intense selling pressure on Monday, dented AUD bullish prospects, as AUD bulls have struggled to reclaim the 0.7250 level.

In the outcome of extending the downtrend, the first support is likely to be the September 30 swing low at 0.7169. A breach of the latter would open the door for a retest of the 2021 year-to-date low at 0.7105.

AUD/USD was stuck in a tight 0.7180/0.7208 range with the next level of support not expected until the 0.7130/40 region. Supply remains solid above 0.7250.

Event Risk Data Today

Aust: Investment disruptions caused by Australia’s extended delta lockdowns are expected to produce a sizeable dip in Q3 private new capital new expenditure (f/c: -4.8%). 2020/21 capex plans should be positive, though Covid delays are likely to result in a sub-par upgrade estimate 3 to 4.Oct 30 weekly payrolls will give an indication of the employment boost from reopening.

NZ: A seasonal increase in agricultural exports is expected to lend some help in narrowing October’s trade deficit (f/c: -$1280m).

US: Observes Thanksgiving Day holiday