29th April 2021 - Powell smashes the greenback


Good Morning,


Market Headlines

The FOMC left its policy settings unchanged, and repeated its key guidance messages, as was widely expected. The statement was a little more upbeat, noting "progress on vaccinations and strong policy support" are helping strengthen economic indicators, including employment. The rise in inflation was acknowledged, but seen as transitory. The Fed reiterated :"the path of the economy will depend significantly on the course of the virus, including progress on vaccinations." QE purchases will remain at least $120bn per month "until substantial further progress has been made toward" the maximum employment and price stability goals. In Q&A, he said it’s not yet time to start talking about tapering asset purchases.


In response, the US dollar and bond yields fell, while equities and risk-sensitive currencies rose. The S&P500 is currently up 0.2% and at a fresh record high. Commodities, Brent crude oil futures rose 1.0% to $67.10, copper rose 0.5% to a fresh ten-year high, and gold rose 0.3%, while iron ore fell 1.3% to $191.10.


The EU parliament gave a final vote to the Brexit trade and security deal, with 660 votes in favour and just 5 against it. The now ratified deal provides the framework for London's new relationship with the 27-member union, despite tensions between both parts persist. The UK has not fully implemented some of the agreements, while the dismal mood is also related to the delayed provision of AstraZeneca vaccines to the Union


Overnight Currency Ranges

AUD/USD 0.7725 0.7801

EUR/USD 1.2051 1.2134

GBP/USD 1.3863 1.3951

USD/JPY 108.58 109.08

NZD/USD 0.7189 0.7267

USD/CAD 1.2314 1.2416

USD/CNH 6.4683 6.4875

AUD/JPY 84.14 84.74

AUD/NZD 1.0718 1.0785


AUD Thoughts

AUD/USD bounced constructively out of yesterday’s soft inflation driven low of 0.7725 and peaked at 0.7801 after the FOMC. Demand is expected under yesterday’s low of 0.7725 while offering interest should materialise as we approach 0.7820/30


Event Risk Data Today

Australia: The market expects the Q1 import price index will fall 2.2% on the higher AUD (up 7.5%), but this will be tempered by rising prices around the world. Meanwhile, the export price index is expected to rise 8.4% on the 19% jump in commodity prices in USD terms.


NZ: Ahead of the release of the March employment indicators, we have seen weekly job numbers hold up. The March trade balance is expected to show that the surplus narrowed to 33bn on temporarily high import values. The final release of the April ANZBO business survey will give us a better view on the effects of the housing market announcements on confidence as businesses will have had more time to digest this news. Within the sectoral breakdown we expect to see confidence within retail and construction take a dip as they have been beneficiaries of strong house price growth. Underlying inflation gauges will continue to be an area worth watching. Global supply chains are still disrupted, and firms are still facing shortages.


Euro Area: The market expects M3 money supply growth will cool to 10.2%yr in March - this is still an elevated pace in historical terms. April economic confidence is expected to firm to 102.1 on the strengthening foundations for recovery.


US: Having moved materially lower in recent weeks, the market is looking for initial jobless claims to print at 539k for the week ended April 24. Some market participants expect a circa 6.0% annualised gain in Q1 GDP after which growth will accelerate again in Q2. As per March retail sales, risks stem from consumption and are to the upside. Housing construction also holds considerable promise, in the immediate and medium-term. March pending home sales should partially reverse the fall seen over a weather-disrupted February, but the supply of properties continues to remain a constraint (market f/c: 4.4%). Finally, the FOMC’s Quarles will discuss financial regulation.