US equities made fresh record highs amid strong reported company earnings, the S&P500 up 0.3% currently. The US dollar was again mixed, the AUD nudging slightly higher. Longer maturity bond yields fell slightly. US 2yr treasury yields rose from 0.43% to 0.46%, while the 10yr yield fell from 1.64% to 1.61%. Markets are fully pricing the first Fed funds rate hike to be in September 2022.
Australian 3yr government bond yields (futures) fell from 0.96% to 0.94%, while the 10yr yield fell from 1.84% to 1.78%. Markets are fully pricing the first RBA rate hike to be in August 2022.
Commodities, Brent crude oil futures rose 0.5% to $86 – a three-year high, US natural gas fell 0.4%, copper fell 0.8%, gold fell 0.8%, and iron ore rose 1.2% to $121.
Overnight Currency Range
AUD/USD 0.7485 0.7525
EUR/USD 1.1585 1.1626
GBP/USD 1.3758 1.3829
USD/JPY 113.68 114.31
NZD/USD 0.7153 0.7192
USD/CAD 1.2350 1.2396
USD/CNH 6.3755 6.3852
AUD/JPY 85.08 85.91
AUD/NZD 1.0456 1.0483
The AUD/USD barely advances during the New York session, is up 0.08%, trading at 0.7497 at the time of writing. Earlier in the day, the pair dipped to 0.7483, yet bounced off the daily lows to print a daily high at 0.7524, finally settling at current levels.
The market sentiment is upbeat due to robust US Q3 corporate earnings, with almost 81% of the S&P 500 companies reporting earnings, beating expectations. Additional factors like inflationary pressures and tightening monetary policy conditions remain in the backseat. However, in the last hour, rising US T-bond yields seem to change the tone of risk-sensitive currencies, like the aussie dollar. The US 10-year Treasury yield is advancing 0.07%, sitting at 1.636%, putting a lid on the AUD/USD pair upbreak move above 0.7500. Also, the US Dollar Index reclaims the 94.00 level, up 0.18%, at press time.
The US economic docket unveiled the US Housing Price Index for August (MoM) reading which rose by 1%, lower than the 1.3% foreseen. Further, the S&P/Case-Shiller Home Price Indices (YoY) expanded by 19.7% less than the 20.1% expected. Further, US New Home Sales for September increased by 0.8M, better than the 0.76M estimated by analysts. The US Consumer Confidence for October improved to 113.8 versus 108.3 expected.
The AUD/USD pair reaction was muted, but as US T-bond yields started to rise, the pair shed 30 pips, trading at current levels.
A busy day ahead beginning in Australia. Q3 CPI inflation data will be keenly watched, particularly given the backdrop of rising yields and the strong Q3 New Zealand inflation print. Markets expect the headline CPI to have risen by 0.9% q/q and 3.2% y/y. ‘Underlying’ inflation is expected to be between 0.4-0.5% q/q but likely to round down to the lower end of that range.
AUD/USD remained in a 0.7485/0.7525 range overnight leaving all key technical levels in place. Demand is expected at 0.7450 and again at 0.7420 while offering interest should materialise around the recent highs at 0.7550/60.
Event Risk Data Today
Australia: The Q3 CPI will be published. In terms of key drivers, fuel and motor vehicles will play an important role, while dwelling prices will also make a strong contribution. However, there is more uncertainty than usual due to the lingering effects from the now-expired HomeBuilder grants and the ABS imputing price changes for some services. The main offsets in Q3 are pharmaceuticals and communications. The market forecasts a 0.8% (3.1%yr) rise for the headline CPI, and a 0.5% (1.9%yr) gain for the trimmed mean measure.
NZ: The market is forecasting the trade deficit to widen slightly to $2170m in September after yet another bumper month for imports. The October ANZ business confidence release will subsequently provide a detailed sectoral breakdown of activity. Underlying inflation gauges will be worth watching as inflation expectations have surpassed the RBNZ’s inflation target band.
US: Wholesale inventories are set for a rebuild as supply restrictions abate. Durable goods orders for September are expected to fall 1.0% as the outlook for investment becomes more uncertain.
Canada: The Bank of Canada’s policy decision will see tapering near completion and the focus of post-meeting communications shift to the timing/conditions for rate hike