Markets were quiet during the US holiday. Equities remained upbeat, the Eurostoxx 50 up 1.1% to a 13-year high, while S&P500 futures rose 0.2% to a record high. The US dollar rose slightly. Commodities, Brent crude oil futures fell 0.5% to $72, copper rose 0.1%, gold fell 0.2%, and iron ore fell 8.4% to $131.
Overnight Currency Range
AUD/USD 0.7427 0.7454
EUR/USD 1.1856 1.1888
GBP/USD 1.3820 1.3863
USD/JPY 109.72 109.94
NZD/USD 0.7128 0.7167
USD/CAD 1.2515 1.2558
USD/CNH 6.4360 6.4547
AUD/JPY 81.59 82.75
AUD/NZD 1.0401 1.0429
The Reserve Bank of Australia will meet today and decide on its monetary policy for the foreseeable future. While traders are certain that interest rates are on hold, the prospects of tapering are the risk. This leaves the Aussie vulnerable to a strong bid and paints a bullish backdrop going into the event today. With that being said, something to the contrary could be catastrophic for the currency considering markets are searching for yield.
Cyclical currencies, such as AUD, may already come under pressure this week should the delta variant be seen to stamp out near-term growth prospects in APAC nations. The US dollar is showing signs of robustness at the start of this week, despite the dismal Nonfarm Payrolls data that arrived on Friday. Investors are of the opinion that should the US sneeze, the rest of the world will catch a cold as well.
While the Federal Reserve is unlikely to taper as soon as markets might have expected during the course of very strong employment over the last quarter, it is unlikely to fall too far behind. Other central banks that have already started or are on the brink of tapering, such as the BoC and the RBA, could rein it all in should need be.
The RBA was due to start to taper, if only very cautiously, in September. However, considering the latest outbreak of the highly contagious Delta variant of coronavirus, the lockdowns mean they might not.
AUD/USD traded in a 0.7427/0.7454 range overnight with offering interest still expected ahead of 0.7500 while demand remains in the 0.7380/7400 region.
Event Risk Data Today
Australia: September RBA policy decision will focus on the pace of asset purchases planned for coming months. The Q3 GDP contraction is now expected to be a multiple of that forecast by the RBA in August when their July decision to taper purchases from $5bn to $4bn in September was confirmed. Given current circumstances, some market participants believe the best course for the RBA would be to not only defer the taper till November, but to also increase purchases to $6bn in the interim. July building approvals should meanwhile show the impact of the HomeBuilder grant unwind and price pressures.
China: The August trade balance should reflect export strength despite the impact of delta. Foreign reserves are likely to be little changed in August, broadly at the level seen through H1 2021.
Euro Area: Little or no revisions are expected in the final release of Q2 GDP (market f/c: 2.0%). The September ZEW survey of expectations will be helpful in assessing firms’ views on delta risks.