6th October 2021 - Caution grows ahead of US employment figures

Market Headlines

US equities rose, the S&P500 up 1.5%, extending the yo-yo pattern of the past few days. Risk-sensitive currencies outperformed safe-havens, and bond yields rose. US 2yr treasury yields rose from 0.28% to 0.29%, while the 10yr yield rose from 1.50% and 1.54%. US services ISM rose from 61.7 to 61.9 (59.9 expected), the seventh consecutive reading above 60 indicating a strong services sector. FOMC member Evans agreed QE tapering could start this year and finish in mid-2022. He said the economy has made a lot of progress although the recovery remains uneven, and expects the inflation spike to eventually fade.

Commodities, Brent crude oil futures rose 1.9% to $83 – a three-year high, copper fell 1.1%, and gold fell 0.4%. The bi-monthly GDT dairy auction resulted in an unchanged overall price index, with whole milk powder down 0.4% - slightly better than expected.

Overnight Currency Range

AUD/USD 0.725 0.7301

EUR/USD 1.1581 1.1621

GBP/USD 1.3586 1.3647

USD/JPY 110.88 111.56

NZD/USD 0.6931 0.6975

USD/CAD 1.2545 1.2628

USD/CNH 6.4429 6.4596

AUD/JPY 80.51 81.34

AUD/NZD 1.0435 1.0474

AUD Thoughts

The Australian dollar seems to have lost steam on Tuesday, as the pair’s recovery from last week's lows at 0.7170 has been rejected at 0.7295. The Aussie has failed at a relevant resistance level with the US dollar picking up after a three-day pullback.

A dovish RBA statement weighs on the AUD

The Aussie has lost momentum on Tuesday’s early trading, following the release of the Reserve Bank of Australia’s monetary policy statement. The Bank confirmed its commitment to maintaining its benchmark rate at 0.1% historical lows, practically discarding the possibility of any monetary tightening in the foreseeable future, which has undermined AUD strength. The Australian dollar attempted to resume the upside path during the US trading session, to be capped at previous highs in the vicinity of 0.7300. A somewhat stronger US dollar, buoyed by higher US bond yields, with the benchmark 10-year note returning above the 1.5% level, is adding negative pressure to the pair.

On the macroeconomic front, US data has been mixed. The US trade balance has posted the largest deficit on record in September, with a $73.3 billion shortfall. On the other hand, the US ISM non-manufacturing PMI ticked up to 61.9 from 61.7 in the previous month, although the shortages on raw materials have increased prices and weighed on employment growth.

The focus now shifts to US employment-related data, starting tonight with the ADP survey on private job creation. US Federal Reserve Chair Powell said one good employment report would convince him about tightening the monetary policy. The country will publish the Nonfarm Payrolls report on Friday.

AUD/USD capped below previous highs at 0.7300/15 area, from a technical perspective daily and hourly charts show the AUD pointing upwards, with resistance at 0.7300/15 keeping a lid on the pair. Above here, the pair might find resistance at 0.7375 (September 13, 14 highs) and 0.7400 (September 10 high). On the downside, the pair has found support at 0.7245 earlier today. Below here, a breach of 0.7165 (September 29 low) might increase bearish momentum and send the pair to retest 11-month lows at 0.7100 (August 20 low).

Event Risk Data Today

New Zealand: The market expects the RBNZ to lift the OCR by 25bps to 0.50% and to endorse the path of future rate hikes projected in its August Monetary Policy Statement (which is also in line with current market pricing).

Euro Area: August retail sales should rebound given healthy consumer confidence (market f/c: 0.8%).

US: ADP employment is expected to continue to lag payrolls in September (market f/c: 430k).

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