5th March 2021 - AUD plummets below 0.7750 on renewed USD strength

Good Morning,

Market Headlines

US Dollar soared as US Treasury yields reached fresh one-year highs following words from Federal Reserve’s head, Jerome Powell. As he repeated several times, he noted that they are “a low way” from their goals. Regarding rates, he said that the outlook is becoming more positive, but remarked that “sustained” progress towards the Fed’s goals is needed for policymakers to change the current monetary policy. When asked about the recent run in yields, Powell said that they would be worried about “disorderly market conditions,” but repeated that they won’t hike rates until inflation runs above 2% for some time.

The yield on the benchmark 10-year Treasury note is at 1.55% as the day comes to an end. Wall Street plummeted, with the three major indexes losing over 2% at some point, albeit bouncing some ahead of the close. Commodities, Brent crude oil futures rose 4.5% to $66.95 – a one-year high, after OPEC restricted production, copper fell 4.8%, iron ore rose 0.7% to $174.95, and gold fell 0.9%.

The focus now shifts to US Nonfarm Payrolls this evening

Overnight Currency Ranges

AUD/USD 0.7709 0.7815

EUR/USD 1.1966 1.2065

GBP/USD 1.3884 1.4017

USD/JPY 106.97 107.90

NZD/USD 0.7173 0.7271

USD/CAD 1.2575 1.2674

USD/CNH 6.4703 6.4853

AUD/JPY 82.97 84.04

AUD/NZD 1.072 1.0748

AUD Thoughts

This evening’s non-farm payrolls data from the US should receive a boost from reopening early in the month. This may result in a solid gain for the leisure & hospitality sector. This impact may be partially offset by a potential headwind from the severe winter weather and the associated power crisis in Texas.

AUD/USD traded in 0.7709/.7815 range overnight with topside resistance expected at 0.7840 and again at 0.79c while demand is thin but will likely grow as we approach 0.7680.

Event Risk Data Today

Australia: Ahead of the February update, the AiG PSI indicates that the services sector is expanding, driven by the economic reopening and consumer spending.

New Zealand: We are forecasting a 3% rise in Q4 building work put in place. That is underpinned by an expected 4% rise in residential building work. Rising house prices are encouraging new building. New Zealanders are also undertaking more renovations. Non-residential building activity is expected to post only a limited rise.

US: In February, we expect that momentum will begin to return to the US labour market. We look for a 200k gain (consensus is 195k) in Non-farm Payrolls, although part of this rise could come as a positive revision to the prior two months. The February ADP employment change measure surprised to the downside at 117k. Forecasts are consistent with a modest rise in the unemployment rate to 6.4% (consensus 6.3%), a function of recovering participation. Average hourly earnings should hold around 0.2% for month. Meanwhile, the January trade balance is expected to edge down to -67.5bn, with 2020’s annual deficit at the widest level since the GFC. Finally, consumer credit is expected to rise to 12.0bn in January, with non-revolving credit the driver of recent strength.