2nd December 2021 - US ADP Employment Change rose foreseen by analysts, NFP eyed


Market Headlines

US equities partly recovered, buyers taking advantage of recent cheapening. The S&P500 is up 0.4%, although that sentiment didn’t ripple to currencies or bonds. The second day of testimony from Fed Chair Powell largely repeated yesterday’s key messages, emphasizing the likelihood the FOMC will accelerate the pace of tapering, as well as highlighting persistent inflation pressures. WHO said that current vaccines do appear to be effective against the omicron variant, although further information on its communicability, morbidity and severity of symptoms is unlikely for another 10 days.


The US dollar index is unchanged on the day. EUR ranged sideways between 1.1303 and 1.1360. USD/JPY fell from 113.63 to 112.70. AUD fell from 0.7173 to 0.7115. NZD fell from 0.6868 to 0.6825. AUD/NZD fell from 1.0460 to 1.0424. US 2yr treasury yields fell from 0.61% to 0.56%, while the 10yr yield fell from 1.50% to 1.43%. Markets fully price the first Fed funds rate hike to be in July 2022.


Australian 3yr government bond yields (futures) fell from 1.12% to 1.08%, while the 10yr yield fell from 1.76% to 1.68%. Markets fully price the first RBA rate hike to be in July 2022. Commodities, Brent crude oil futures rose 0.5% to $70, copper fell 0.6%, gold rose 0.3%, and iron ore rose 0.5% to $103.


Overnight Currency Range

AUD/USD 0.7105 0.7172

EUR/USD 1.1303 1.1360

GBP/USD 1.3276 1.3352

USD/JPY 112.67 113.63

NZD/USD 0.6817 0.6867

USD/CAD 1.2712 1.2828

USD/CNH 6.361 6.3730

AUD/JPY 80.11 81.47

AUD/NZD 1.043 1.0457


AUD Thoughts

In the overnight session, the AUD/USD pair recovered most of Tuesday’s losses, peaking at around 0.7172. However, as the European session got underway, it retested the 50-hour simple moving average around 0.7140 but bounced off that level, printing another leg-up, ahead of the testimony of Fed’s Chair Jerome Powell and Treasury Secretary Janet Yellen, before the Congress.

Another quieter day in regard to economic releases with investors looking toward tomorrow’s employment report from the US as the next main driver of sentiment. The further spread of the Omicron strain is also expected to be monitored after the overnight news of cases in the U.S saw a significant risk reversal. Reports so far seem to suggest quite mild symptoms but being so early in its discovery we will need to wait for further information before drawing any conclusions.

AUD/USD traded in a 0.7109/0.7172 range overnight with demand still expected ahead of 0.7050 while offering interest has likely been lowered to the 0.7170 region.


Event Risk Data Today

Australia: Housing finance approvals are expected to lift in October as house prices continue to rise and turnover increases on reopening (f/c: 4.0%). A narrowing of the trade surplus is anticipated in October due to a rebound in imports and a further pull-back in export earnings as a result of falling iron ore prices (f/c: $10.8bn).


NZ: In Q3, the terms of trade are expected to lift further with price gains for commodity exports outstripping those for imported goods (f/c: 2.0%).


Eurozone: Strength in employment growth should continue to see the unemployment rate gradually fall in October (market f/c: 7.3%).


US: Initial jobless claims are anticipated to stabilise after recently hitting multi-decade lows (market f/c: 240k). The FOMC’s Bostic will discuss the high cost of housing at a virtual conference hosted by the Atlanta and Dallas Feds, and will then take part in a discussion at a virtual Reuters event. Quarles will share his departing thoughts to the American Enterprise Institute, while Daly and Barkin speak at the Peterson Institute.

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