6th January 2021 - Dollar down, focus on US Georgia runoffs

Updated: Feb 3


Good Morning,


Market Headlines

The US dollar resumed its decline, particularly hit against commodity-linked currencies. AUD and CAD surged to fresh multi-year highs against the greenback, as crude oil prices surged following an OPEC+ announcement on holding oil output cuts. US Treasury yields ticked higher, with the yield on the benchmark 10-year note settling at 0.96%.European indexes closed the day mixed as investors were cautious. Wall Street, however, posted a nice comeback, recovering most of the ground shed on Monday.


The focus is on the US Georgia runoff. The state is voting senators. Right now, Republicans have 50 seats, while Democrats hold 48. The result could be a game-changer in the upcoming Joe’s Biden presidency.


Currency

AUD/USD: 0.7690 – 0.7777

EUR/USD: 1.2254 – 1.2306

GBP/USD: 1.3558 – 1.3641

USD/JPY: 102.61 – 102.99

USD/CAD: 1.2657 – 1.2775

NZD/USD: 0.7193 – 0.7259

AUD/JPY: 79.10 – 79.83

AUD/NZD: 1.0684 –1.0720


AUD Thoughts

- AUD/USD surges as the US dollar gives back gains on US election jitters in the Senate election run-off.

- AUD short positions increased moderately last week but remain well below their recent highs.

- AUD/USD is currently trading at 0.7771 and firmly up some 1.45% on the day as the US dollar suffers the market's volatility of early 2021 markets.


The US dollar fell against a basket of major currencies on Tuesday, in the wake of China's decision to lift its official yuan exchange rate by its highest margin since it abandoned the dollar peg in 2005. China's central bank set the official yuan midpoint at 6.4760 per dollar before the market opened, up 1% from the previous fix, the biggest change higher since 2005. In the offshore market, the yuan strengthened as far as 6.4119 for the first time since mid-June 2018. It started the week at 6.494.


Meanwhile, China's Caixin manufacturing PMI came in weaker than expected, dropping to 53.0 in Dec (mkt 54.7) from, 54.9 in Nov. The PMI expanded for an 8th straight month. The details of the report revealed a fall in output to 55.4 from 57.1 in Nov and a fall in new orders to its lowest since Aug 2020. Overall, the data is consistent with the NBS manufacturing PMI, which also revealed a slight softening, indicating a small loss in momentum, however, AUD is benefitting most amid a recovery in China's economy.


Meanwhile, net AUD short positions increased moderately last week but remain well below their recent highs. Of note for the weeks ahead, China/Australian tensions could be a stumbling block for the Aussie and, moreover, the Reserve Bank of Australia’s QE policy could be tempering the attraction of the AUD.


The focus for the rest of the day will be on the Senate election run-off. As of right now, the odds on PredictIt show a virtual dead heat. Polls in Georgia will close at 7 pm ET and then the counting starts.


Looking for bids in AUD now from the 0.7720/40 break-up area and then again nearer 0.7660, offers can be expected nearer the new big figure of 0.7800.


Event Risk Data Today

CH – December Services and Composite PMI

FR, GE, EU, UK – December Services and Composite PMI

GE – December CPI

US – December ADP Employment

US – December Services and Composite PMI

US – November Factory Orders and Durable Goods Orders

US – FOMC Minutes




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