US equities rose (S&P500 +0.8%) amid a continuing stream of strong company earnings reports, supporting the AUD and NZD. Bond yields remained near multi-month lows, though. On the currencies front EUR initially rose from 1.1875 to 1.1893 before falling to 1.1854. USD/JPY fell from 109.20 to 108.88 – a two-month low. AUD initially reversed its positive reaction to the RBA’s hawkish surprise, falling from 0.7408 to 0.7362, but then recovered to 0.7397 during the rally in US equities. Outperformer NZD similarly roundtripped from 0.7019 to 0.6983 and back. AUD/NZD ranged between 1.0530 and 1.0560.
Commodities, Brent crude oil futures fell 0.6% to $73, copper fell 1.1%, and gold fell 0.1%. Iron ore rose 0.8% to $183. The bi-monthly GDT dairy auction resulted in an overall price decline of 1.0%, with whole milk powder down 3.8% (compared to yesterday’s futures market predictions of a 2% rise).
Overnight FOMC member Daly said she does not expect the labour shortage to persist, expecting people to return to work eventually. Waller said the Fed could favour tapering QE as early as September if the next two jobs reports are as strong as the last one. Alternatively, if the reports are weaker, then tapering will probably be delayed by a couple of months. Brainard has adopted a more cautious approach, wanting to see the data before deciding on the next policy step in September. Bullard wondered whether a new regime had started, of stronger growth and improved productivity, along with higher interest rates and faster inflation. He wants to start tapering soon.
Overnight Currency Range
AUD/USD 0.7357 0.7408
EUR/USD 1.1854 1.1893
GBP/USD 1.3884 1.3938
USD/JPY 108.87 109.34
NZD/USD 0.6966 0.7018
USD/CAD 1.2491 1.2576
USD/CNH 6.4602 6.4689
AUD/JPY 80.12 80.91
AUD/NZD 1.0527 1.0565
AUD/USD struggles to extend the heaviest daily gains in a month, led by the RBA’s hawkish tilt, beyond the 0.7400 round-figure. That said, the Aussie pair seesaws around 0.7390 as Asian traders brace for Wednesday’s work. The Reserve Bank of Australia (RBA) offered a positive surprise to the markets by keeping the September tapering on the table despite the covid woes at home. The same fuelled AUD/USD prices by nearly 40 pips immediately on the announcement even as the Australian central bank did reiterate the rate-hike rejection until 2024, not to forget mentioning of holding the benchmark rate and three-year yield target unchanged per market consensus.
The mildly positive mood of investors offered additional strength to the AUD/USD pair’s upside momentum as the International Monetary Fund (IMF) announced historical allocation to the Special Drawing Rights (SDRs) to battle the pandemic whereas the US Senators also sounding optimistic over President Joe Biden’s infrastructures spending plan’s passage this week.
Moody’s optimism over the Asia–Pacific region’s economic growth and softer virus-led figures for the second consecutive day was extra positives that helped the quote keep the post RBA gains.
On the contrary, firmer US Factory Orders and Middle East jitters, not to ignore Republicans’ battle lines for stimulus, challenge the pair’s upside momentum. On the same line could be the market’s cautious sentiment ahead of the week’s key events, namely Thursday’s Bank of England (BOE) meeting and Friday’s US Nonfarm Payrolls (NFP).
The AUD/USD pair’s struggle to overcome the 0.7400 hurdle will seek clues from Australia’s Retail Sales data for June, likely confirming -1.8% initial forecast, as well as China’s Caixin Services PMI, prior 50.3. Following that, US ISM Services PMI for July, market consensus 60.4 versus 60.1 prior, may entertain the pair traders. Above all, covid headlines and stimulus updates could offer key directions to the pair.
Event Risk Data Today
Australia: Preliminary estimates showed a 1.8% fall in retail sales in the June month, led by a 3.5% drop in Vic and a 2% decline in NSW – both impacted by COVID restrictions. Food retailing rose 1.5%, likely boosted by related stockpiling and expenditure switching effects. All other segments recorded significant declines (f/c -1.8%). Real retail sales look to have posted a modest gain in Q2. Nominal sales are up about 1.3% compared to a 0.1% dip in Q1. The Q2 CPI detail suggests retail prices were a touch firmer but likely up around 0.6% overall. That gives a volume rise of 0.7%qtr. Annual growth will spike to over 9% due to base effects from last year's COVID lockdown.
New Zealand: Markets expect June quarter employment to advance 1.0%, which should see the unemployment rate to fall from 4.7% to 4.4%. That’s not quite back to pre-Covid levels, but it is getting close to what we would have considered to be ‘maximum sustainable employment’, even during normal times. Markets pencilled in a 0.8% increase in the Labour Cost Index for the June quarter, compared to a subdued 0.4% rise last time. That would be a dramatic one-quarter change for what is, by construction, a slow-moving series. But the risks are probably to the upside of this.
Asia: July Nikkei PMIs will be released for Hong Kong and Singapore, and Nikkei services PMIs will be released for China (Caixin) and India.
Euro Area: Retail sales should advance by a robust 1.7% in June, but expenditure will be shifting to leisure and services spending.
US: The market is looking for a 675k rise in June ADP employment, although this remains a poor guide for official payrolls out Friday. The July ISM non-manufacturing survey is set remain around a buoyant read of 60.5, with conditions supported by a switch to services spending. Finally, Vice Chair Clarida will speak at a Peterson Institute Event.