Market Headlines
US equity markets rose, the S&P500 up 0.9% to a fresh record high. The US dollar and bond yields fell. Fed Chair Powell’s Jackson Hole speech was not as hawkish as some had expected. US 2yr treasury yields fell from 0.25% to 0.21%, while the 10yr yield fell from 1.36% and 1.30. Commodities, Brent crude oil futures rose 2.3% to $73, copper rose 1.7%, and gold rose 1.4%.
Overnight Currency Range
AUD/USD 0.7222 0.7317
EUR/USD 1.1735 1.1802
GBP/USD 1.3679 1.3781
USD/JPY 109.78 110.26
NZD/USD 0.6933 0.7018
USD/CAD 1.2606 1.2709
USD/CNH 6.4585 6.4857
AUD/JPY 79.38 80.35
AUD/NZD 1.0410 1.0442
AUD Thoughts
AUD/USD offers a quiet start to the week, taking rounds to 0.7300 after rallying the most since early June the previous day. In doing so, the risk barometer balances between Fed Chairman Jerome Powell-led optimism and covid, as well as geopolitical, challenges.
On Friday, Fed Chair Powell buoyed global market sentiment despite signalling taper this year. The reason could be linked to the central banker’s refrain from offering any exact timing and indicating a gap between the taper and rate hike. Also, comments like “We will be carefully assessing incoming data and the evolving risks,” offered extra confirmation to the markets that the easy money policy is here to stay, at least for now.
With the spike in risk appetite, equities and gold managed to rally while the US Dollar Index (DXY) dropped to a two-week low. The same helped AUD/USD prices to print the biggest daily jump in 12 weeks.
It should be noted, however, that the escalating tussles between the US and China, as well as the West and the Middle East challenge optimists. Also on the negative side were Australia’s highest daily covid cases, the latest around 1,330.
The latest comments from US President Joe Biden renew the Sino-American tension as the Democratic Party member said that Chinese officials worked to prevent investigators from assessing covid origins. On the other hand, the global ire towards the Taliban and the US–Iran tussles also weigh on the risk-on mood. Furthermore, hurricane Ida roils the energy output and tests the Antipodeans as well.
Looking forward, qualitative catalysts will be important for near-term AUD/USD direction as the economic calendar is mostly empty, with Q2 Aussie Company Gross Operating Profits, expected +3.0% versus -0.3% prior. Additionally, the US Pending Home Sales for July and Dallas Fed Manufacturing Business Index for August will also be important to watch.
A daily closing beyond the two-month-old downward sloping trend line, around 0.7290 now, keeps AUD/USD buyers hopeful to challenge the monthly top surrounding 0.7430.
Event Risk Data Today
Australia: The market expects a -1.5% decline in Q2 company profits as tapering of subsidies continues to dent earnings. Q2 inventories are forecasted to be up 1.4% as inventories rebuild following a sharp rundown and subsequent consolidation over 2020. Finally, June business indicators will offer a timely read on business conditions for Q2.
Euro Area: The August economic confidence release will provide an early gauge on business and consumer sentiment.
UK: England, Wales and Northern Ireland will hold their Summer bank holiday.
US: The July pending home sales should show the continuing constraints of supply on sales (market f/c: 0.4%). Further, the August Dallas Fed index will offer an indication of the regional impact of the delta strain.