3rd March 2021 - AUD/USD climbs to daily highs above 0.7800 as USD weakens on falling T-bond yields

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Market Headlines

Markets appeared to be in stall mode, with US equity indices and bond yields little changed. Central bankers pledged to maintain stimulus, pouring some cold water on the market’s concerns. RBA Governor Philip Lowe reaffirmed the commitment to maintain the three-year yield target at 10 basis point, indicating that the central bank stepped in “to assist with the smooth functioning of the market.” Lowe added that the RBA is ready to act as necessary.

US Federal Reserve officials were on the wires, and Lael Brainard said that the central bank is focused on “realized progress towards inflation and employment goals,” adding that the Fed will remain “patient” on monetary policy. Later in the day, Mary Daly said that the country needs fiscal support, adding that she doesn’t see fiscal stimulus boosting inflation “in unwelcome ways.”

Commodities: Brent crude oil futures fell 0.4% to $63.45, copper rose 2.7%, iron ore rose 0.4% to $175.35, and gold rose 0.6%. The bi-monthly GDT dairy auction resulted in a price rise of 15% overall, with whole milk powder up 21% - the largest auction rise since 2010, taking WMP prices back up to 2014 levels. The result was well above expectations, with WMP futures markets yesterday pricing an 8% gain.

Overnight Currency Ranges

AUD/USD 0.7737 0.7837

EUR/USD 1.1992 1.2089

GBP/USD 1.386 1.3975

USD/JPY 106.68 106.955

NZD/USD 0.7210 0.7303

USD/CAD 1.2601 1.2698

USD/CNH 6.4635 6.4836

AUD/JPY 82.58 83.55

AUD/NZD 1.068 1.0781

AUD Thoughts

The AUD/USD pair broke above 0.7800 during the European trading hours and stayed relatively quiet before starting to push higher in the American session. As of writing, the pair was trading at a fresh daily high of 0.7820, rising 0.66% on a daily basis.

Looking forward, Q4 GDP will be watched closely with forecasts to rise by 2.5%, followed by the ABS releasing the Weekly Payroll Jobs and Wages for the week ending 13 Feb. Abroad we have the U.S. ISM Services Index for February is due this evening and may show some improvement reflecting re-opening that occurred over the month. The employment component could influence expectations for the Non-Farm Payrolls figure later in the week.

AUD bounced out of yesterday’s low of 0.7737, helped largely by the unchanged RBA stance. Offering interest at 0.7820 was cleared overnight with the next level of resistance coming in at 0.7900 while demand in the 0.7760/80 region should help slow any meaningful dip.

Event Risk Data Today

Australia: Markets are forecasting Q4 GDP to rise by 2.5%. This would see year-ended growth at -1.8%yr. The quarterly partials point to clear upside risks – potentially GDP could print close to 3%, following the 3.3% lift in Q3. All other things being equal, we require consumer spending to print at 3.7% for GDP to land on our 2.5% forecast. The AiG PCI has been strengthening markedly ahead of the February update, with rising new orders, notably in housing. The ABS will release Weekly Payroll Jobs and Wages for the week ending 13 Feb.

New Zealand: Markets expecting that building consent numbers will ease by 2% in January. That’s due to an expected easing in apartment consents, which rose strongly in December in regions outside of Auckland. Dairy prices should continue to support February ANZ commodity prices.

Asia: Nikkei services PMIs are due for India and China (Caixin).

US: February update of ADP employment change (f/c: 250k). The February ISM non-manufacturing index will be supported by robust retail into year-end (market f/c: 58.1). From the Federal Reserve, Harker (02:00 AEDT) and Evans (05:00 AEDT) will speak, and the Beige Book will provide an update on conditions across the Fed districts.

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