US equities extended the see-saw pattern of the past two weeks, the S&P500 up 0.6% at a record closing high. Bond yields rose slightly, while risk-sensitive currencies outperformed slightly. The Bank of England maintained policy settings but signalled eventual tightening. The US dollar index is unchanged on the day. EUR ranged sideways between 1.1828 and 1.1857. GBP rose from 1.3895 to 1.3949, helped by BoE policy guidance. USD/JPY rose from 109.40 to 109.79, the defensive yen underperforming. AUD rose from 0.7390 to 0.7416. NZD rose from 0.7040 to 0.7074. AUD/NZD ranged between 1.0470 and 1.0495.
Commodities, Brent crude oil futures rose 1.3% to $71, copper rose 0.4%, and gold fell 0.4%. Iron ore fell 7.6% to $169 – a four-month low- on expectations of further output restrictions in China.
Overnight Event Wrap
US weekly initial jobless claims fell slightly, from 399k to 385k (vs 383k expected). Continuing claims fell from 3296k to 2930k.
The Bank of England maintained its policy settings, as was widely expected, with the committee voting 8-0 to maintain the policy rate, and 7-1 to maintain QE (Saunders favours tapering now). The statement repeated the view that inflationary pressures should prove to be transitory. Also repeated was that it will hike the repo rate before reducing the stock of assets purchased under the QE program. It also signalled eventual tightening, saying that should the economy evolve in line with projections, modest tightening of monetary policy would likely be necessary over the forecast period.
Overnight Currency Range
AUD/USD 0.7377 0.74155
EUR/USD 1.1828 1.1857
GBP/USD 1.3873 1.3949
USD/JPY 109.40 109.8
NZD/USD 0.7038 0.7074
USD/CAD 1.2475 1.2547
USD/CNH 6.4545 6.4651
AUD/JPY 80.71 81.35
AUD/NZD 1.0477 1.0495
AUD Thoughts
AUD/USD bulls flirt with the 0.7400 threshold as Asian traders brace for the NFP day, Friday. The Aussie pair benefits from the improved market sentiment ahead of RBA Governor Phillip Lowe’s testimony and the key US data (US NFP).
After a dull start to Thursday, risk appetite improved during the US session amid news that the Senators are closer to infrastructures spending bill passage and may start negotiating the budget details as the debt limit pause expired. As per Bloomberg, the US Congressional Budget Office (CBO) sees the infrastructure bill widening the budget gap by $256 billion.
Also contributing to the risk-on mood could be the Fed policymakers’ unuttered optimism that the economy remains strong despite the Delta covid variant. The consensus gains support from upbeat US Jobless Claims data. It should be noted however that Australia posted higher covid infections since August 2020 and numbers from the US, China and Japan also challenge the upbeat mood, also the AUD/USD prices. Amid these plays, Wall Street benchmarks closed positive for Thursday while the US 10-year Treasury yields jumped the most in 12 days to 1.22%.
Looking forward, RBA Governor is up for testimony before the House of Representatives Standing Committee on Economics and bulls will be keen to reconfirm the bullish bias heard earlier in the week. Following that, China trade numbers and US employment data will be important to watch.
Event Risk Data Today
Australia: At 9:30am, RBA Governor Lowe will give an address to the House of Representatives Standing Committee on Economics (Online). Following this, the RBA will publish its August Statement on Monetary Policy – the focus will be on the Bank’s updated forecasts in light of the recent lockdowns.
China: The Q2 current account balance is due on Friday, and on Saturday 7th, we are expecting the release of the July trade balance and foreign reserves.
US: Some expect a gain of 875k in July nonfarm payrolls (market consensus is 865k), however the unemployment rate is likely to only edge down in the month to 5.7%. This is because the job creation that is occurring will increasingly attract those who left the labour market over the past year back in. The end of extended unemployment benefits across the nation will further support this trend. Note that the July ADP employment measure missed estimates, but this can be a poor guide for the official figures. Average hourly earnings will continue to be driven by low-income professions in July (market f/c: 0.3%). Vehicle loans will remain a key driver of June consumer credit (market f/c: $23.0bn).