Markets continued to be driven by headlines on Ukraine, the S&P500 closing down 0.8%. Bond yields fell slightly, a strong US jobs report dominated by safe-haven buying. The AUD and NZD again outperformed, helped by rising commodity prices.
The US dollar index closed up 0.8% on the day, and at a high since May 2020. EUR fell from 1.1040 to 1.0886 (a 2-year low). USD/JPY fell from 115.50 to 114.65. AUD rose from 0.7340 to 0.7381 (four-month high). Outperformer NZD rose from 0.6805 to 0.6872 (two-month high). AUD/NZD fell from 1.0790 to 1.0733.
US 2yr treasury yields ranged between 1.45% and 1.50%, while the 10yr yield fell from 1.81% to 1.70%. The 2-10yr yield curve flattened further to the lowest since March 2020. Markets fully price a 25bp hike in March. Australian 3yr government bond yields (futures) fell from 1.62% to 1.56%, while the 10yr yield fell from 2.19% to 2.10%. The first RBA rate is priced for July 2022.
Commodities, Brent crude oil futures rose 7.1% to $118, copper rose 5.8%, gold rose 1.8%, and iron ore fell 0.6% to $151.
Overnight Currency Range
AUD/USD 0.7301 0.7380
EUR/USD 1.0886 1.1068
GBP/USD 1.3201 1.3355
USD/JPY 114.65 115.56
NZD/USD 0.6767 0.6871
USD/CAD 1.2670 1.2791
USD/CNH 6.3180 6.3302
AUD/JPY 84.13 85.14
AUD/NZD 1.0735 1.0788
The highlight of the week comes on Thursday evening where U.S CPI February headline monthly measure may show a further solid rise due to the boost from energy prices that occurred during the month. YoY both core and headline should reach new cycle highs, in part driven by favourable base effects. Market focus may once again be on the breadth of inflation, which has worsened in recent months.
The AUD peaked at a high of 0.7380 on Friday before closing the week at 0.7371. Offering interest is expected ahead of 0.7400 while demand has likely followed spot higher and lies back toward 0.7250.
Event Risk Data Today
Aust: The recent strength in ANZ job ads provides further evidence of a tight labour market.
China: Authorities seem comfortable with the Renminbi’s value, with foreign reserves anticipated to remain stable in February (market f/c: $3225bn).
Eur: Despite the robust health of the European economy, recent geopolitical tensions are likely to dampen investor confidence in the March Sentix survey (market f/c: 5.3).