Equity markets stalled following a three-day rally, the S&P500 currently up 0.1%. Bond yields continued to rise, and the defensive US dollar fell. The US dollar index is down 0.5% on the day. EUR rose from 1.1267 to 1.1350. USD/JPY rose from 113.31 to 113.95. AUD rose from 0.7125 to 0.7184. NZD rose from 0.6767 to 0.6819. AUD/NZD rose from 1.0500 to 1.0536.
US 2yr treasury yields ranged between 0.67% and 0.71%, while the 10yr yield rose from 1.46% to 1.54%. Markets fully price the first Fed funds rate hike to be in June 2022. Australian 3yr government bond yields (futures) ranged between 1.09% and 1.16%, while the 10yr yield rose from 1.63% to 1.70%. Markets fully price the first RBA rate hike to be in July 2022.
Commodities, Brent crude oil futures rose 0.9% to $76, copper rose 1.2%, gold rose 0.1%, and iron ore rose 0.2% to $110.
Overnight Currency Range
AUD/USD 0.7115 0.7183
EUR/USD 1.1267 1.1350
GBP/USD 1.3161 1.3260
USD/JPY 113.31 113.95
NZD/USD 0.6767 0.6818
USD/CAD 1.2607 1.2666
USD/CNH 6.3307 6.366
AUD/JPY 80.64 81.71
AUD/NZD 1.0488 1.0536
AUD/USD has extended on its recent run of gains in recent trade, with the rally accelerating as the pair breached a key level of resistance around 0.7170. AUD/USD now trades close to the 0.7180 mark, up about 0.8% on the day, and extending its gains on the week to now more than 2.5%.
Recall that on Tuesday the pair broke to the north of a long-term descending trend channel that had been suppressing the price action going all the way back to early November. Well, Wednesday has seen an apparent extension of the technical buying, though the bulls are yet to push Aussie back to within reach of its 21-day moving average, which currently resides just above 0.7200.It may be a struggle for the Aussie to continue its sharp rally into the end of the week. On the four-hour candlesticks, AUD/USD’s 14-period Relative Strength Index has rapidly reversed from under 30 (oversold) as recently as last Friday to now above 70 (overbought). This may be taken as a profit-taking signal that slows the current rally.
Bullish fundamentals also helping….Commodity prices remain buoyant, with oil and copper prices up more than 1.0% on the spot market, boosted following this week’s strong China import figures and amid efforts by the PBoC to further ease financial conditions. This has continued to provide tailwinds for the Aussie, while Tuesday’s RBA meeting is adding to the bullish mix. The meeting was interpreted hawkishly by many analysts suggesting that the commentary supports a significant drop in purchases in February, by emphasising the weight of actions already taken, and linking the path to other central banks also hastily moving toward the exit. The language suggests a sudden end to QE (quantitative easing) in February remains possible, but still not base case since it is probably preferable to finish a little after the Fed” the bank added. Ahead, AUD traders will be focused on monetary policy remarks from RBA Governor Philip Lowe during the coming Asia Pacific session.
AUD/USD continued its rebound overnight and peaked at 0.71835. Further offering interest is expected ahead of 0.7200 while demand rests ahead recent lows of 0.6995
Event Risk Data Today
NZ: Manufacturing activity in Q3 is expected to have fallen by xx% q/q due to the lockdowns.
China: Consumer inflation is expected to remain modest in November (market f/c: 2.5%yr) despite intense supply-side pressures as evinced by producer prices (market f/c: 12.1%yr). M2 money supply growth should remain steady in November and is ample for robust activity growth (market f/c: 8.7%). Meanwhile, new loans for November should point towards healthy growth in credit into year end, setting the scene for an acceleration in investment in 2022 (market f/c: CNY1572.5bn). Note, the M2 and loan data is due 9-15 December.
GER: Germany’s trade surplus is expected to moderate slightly in October but should remain wide in 2022 as exports benefit from the global recovery (market f/c: €14.3bn).
US: Initial jobless claims are expected to stabilise near historic lows (market f/c: 220k). The final release for October’s record high wholesale inventories will confirm businesses’ desire to rebuild stock as supply chain constraints are worked through (market f/c: 2.2%).
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