US equities are slightly lower, the S&P500 currently down 0.2%, as markets reflect on yesterday’s signal from the Fed that it would start raising rates in March. The US dollar has risen further, while bond yields are lower on over-tightening concerns. The US dollar index is up 0.8% on the day, and at the highest level since July 2020. EUR fell from 1.1225 to 1.1132 – the lowest since May 2020. USD/JPY rose from 114.65 to 1145.49. AUD fell from 0.7100 to 0.7027. NZD fell from 0.6630 to 0.6576 – the lowest since October 2020. AUD/NZD ranged between 1.0685 and 1.0721.
US 2yr treasury yields ranged between 1.16% and 1.20% (compared to around 1.03% pre-FOMC yesterday), while the 10yr yield fell from 1.86% to 1.78% (it was around 1.78% pre-Fed) – possibly reflecting over-tightening concerns. Markets continue to fully price the first Fed funds rate hike to be in March 2022. Australian 3yr government bond yields (futures) fell from 1.56% to 1.50%, while the 10yr yield fell from 2.06% to 1.98%. Markets fully price the first RBA rate hike to be in May 2022.
Commodities, Brent crude oil futures fell 0.5% to $90, copper fell 2.1%, gold fell 1.4%, and iron ore rose 0.5% to $138.
Overnight Currency Range
AUD/USD 0.7024 0.7122
EUR/USD 1.1131 1.1243
GBP/USD 1.3359 1.3469
USD/JPY 114.48 115.49
NZD/USD 0.6571 0.6658
USD/CAD 1.2651 1.2744
USD/CNH 6.3374 6.3755
AUD/JPY 80.89 81.75
AUD/NZD 1.0681 1.0718
Some further activity and sentiment data due from the US this coming session although expect positioning adjustments following the Fed meeting yesterday (and Ukrainian tensions ) will continue to drive markets into the weekend.
AUD/USD continuing to trade poorly and soak up what demand has appeared for the moment. The next key downside level is at the lows of 2021 just under the 0.7000 area.
Look for a degree of corporate demand in that region although feel we need to see a few sessions of stability on equity and rates markets before we can expect a sustained bounce higher.
Event Risk for the Day
Aust: Pressures on input prices, especially energy costs, are expected to lend upward support to the Q4 PPI.
NZ: The January ANZ consumer confidence survey should highlight household’s concerns with Covid and inflation.
Eur: Economic confidence for the Euro Area is likely to be hit by omicron in January. December’s M3 money supply growth is anticipated to remain strong, indicating ample liquidity for the economy (market f/c: 6.8%).
US: The Q4 employment cost index will receive upward support from tightness in the labour market (market f/c: 1.2%). Wages growth should continue to lift personal income (market f/c: 0.5%) in December, although omicron and inflation will likely weigh on personal spending (market f/c: -0.6%). December’s PCE deflator is expected to lift further to near 40-year highs (market f/c: 0.4%). The final release of January’s University of Michigan sentiment survey will confirm the impact of omicron and inflation on confidence.