Market Headlines
US equity markets fell, the S&P500 down 0.6%. Fed commentary was hawkish, and there was a fatal explosion at Kabul airport. The US dollar rose, while bond yields are little changed. US 2yr treasury yields ranged between 0.24% and 0.25%, while the 10yr yield ranged between 1.34% and 1.37%. Commodities: Brent crude oil futures fell 1.5% to $71, copper fell 0.7%, and gold rose 0.1%. Iron ore rose 14.1% to $154, following a local media report that China intends boosting industrial development.
FOMC member Kaplan said he would prefer to start tapering sooner and move gradually, and will push for an announcement in September and start in October. He remains concerned over the unintended consequences of the Fed's purchases, reiterating that bond buying does help boost demand, but demand is not a problem. George said tapering should start this year. She said the Delta variant does not change her calculus as to when to start making adjustments, and that the Fed has reached the criteria of substantial progress. Bullard said the economy does not need much more stimulus, calling for a start to tapering. He is also worried about financial stability issues, about an "incipient housing bubble," noting he was too complacent last time and that turned out to be a mistake. He would like to end tapering by the end of Q1 in order to provide "optionality", and then favours a passive balance sheet runoff.
Overnight Currency Range
AUD/USD 0.7235 0.7279
EUR/USD 1.1746 1.1779
GBP/USD 1.3690 1.3767
USD/JPY 109.92 110.22
NZD/USD 0.6941 0.6977
USD/CAD 1.2587 1.2695
USD/CNH 6.4693 6.4853
AUD/JPY 79.65 80.08
AUD/NZD 1.0413 1.0442
AUD Thoughts
AUD/USD has started to correct the correction of the daily bearish impulse in line with the broader bearish trend. The Federal Reserve hawks are circling over the Jackson Hole which has given a boost to US yields and the US dollar, pressuring risk appetite, US stocks and the commodity complex.
AUD/USD is currently trading near 0.7240 after falling from a high of 0.7279 and en-route to surpass the low of the day 0.7237, which is the prior day's swing low.
Meanwhile, Federal Reserve's James Bullard, Robert Kaplan and Esther George have spoken up the day before a marquee speech by Fed Chair Jerome Powell to urge the central bank to begin paring bond purchases. All three of the hawks have downplayed the impact of the coronavirus delta variant in separate interviews. Markets are now anticipating a hawkish outcome from Powell's keynote speech on Friday and are pricing in the start of a taper and the timings that could be announced as soon as the September Fed meeting.
AUD/USD traded in a tighter 0.7235/0.7279 range overnight with offering interest expected ahead of 0.7300 while demand should materialise if we revisit the recent lows of 0.7106.
Event Risk Data Today
Australia: The market expects a 2.5% decline in July retail sales, as lockdown measures intensified in Sydney and Melbourne entered another 14-day period of restrictions.
New Zealand: The market sees further solid gains in the July employment indicator. The August figures will no doubt be weaker, with the country entering a snap lockdown. However, during the first lockdown in March 2020, the drop in filled jobs was relatively small and quickly unwound, whilst hours worked sustained more of a sharp drop.
China: Industrial profits have been buoyed over the past year by commodity prices and global re–opening.
US: Wholesale inventories are set for a rebuild following the Q2 drawdown (market f/c: 1.0%). The market consensus for July personal income is a 0.2% gain, lifted by wage income and child tax credit subsidies. July personal spending should reflect a rotation to services consumption, sustaining gains (market f/c: 0.4%). Further, the July core PCE deflator should provide evidence of the transitory nature of recent inflation pressures (market f/c: 0.3%m/m, 3.6%y/y).
Finally, FOMC Chair Powell will speak on day 1 of the Jackson Hole symposium – the market will be seeking clarity on the policy outlook.