9th February 2022 - AUD up on commodity/equity prices, but remains capped under 0.7150 pre-US CPI

Market Headlines

US equities rose, the S&P500 currently up 0.8%, while the US dollar and bond yields rose slightly. There was little market-noteworthy news. The US dollar index is up 0.2% on the day. EUR fell from 1.1449 to 1.1496. USD/JPY rose from 115.25 to 115.63. AUD ranged between 0.7107 and 0.7138. NZD ranged between 0.6627 and 0.6653. AUD/NZD ranged between 1.0717 and 1.0749.

US 2yr treasury yields preserved the day’s earlier gains, ranging between 1.31% and 1.34% (high since Feb 2020), while the 10yr yield rose from 1.93% to 1.97% (high since Nov 2019). Markets continue to fully price a 25bp rate hike for March 2022, with some chance of a 50bp hike. Australian 3yr government bond yields (futures) rose from 0.58% to 0.62%, while the 10yr yield rose from 2.10% to 2.16%, both making highs since March 2019. The first RBA rate is priced for June 2022. Commodities: Brent crude oil futures fell 2.0% to $91, copper rose 0.2%, gold rose 0.3%, and iron ore fell 0.1% to $149.

Commodities, Brent crude oil futures fell 2.0% to $91, copper rose 0.2%, gold rose 0.3%, and iron ore fell 0.1% to $149.

Overnight Currency Range

AUD/USD 0.7107 0.7144

EUR/USD 1.1397 1.1448

GBP/USD 1.3508 1.3561

USD/JPY 115.06 115.63

NZD/USD 0.6628 0.6654

USD/CAD 1.26655 1.2721

USD/CNH 6.3571 6.3761

AUD/JPY 81.90 82.50

AUD/NZD 1.0716 1.0754

AUD Thoughts

- AUD/USD has been ebbing higher but remains capped under 0.7150 and within recent ranges.

- Analysts have cited favourable price action in the base metals space and in global equities as benefitting the Aussie.

- The pair will likely remain subdued, however, ahead of key US CPI data on Thursday

It’s been a quiet session for AUD/USD, with the pair ebbing higher and remaining support above 0.7100, but unable to test resistance at 0.7150. As things stand, the pair is about 0.2% higher on the day and continues to trade within last Friday’s ranges, though has pared the entirety of last Friday’s post-strong US jobs data drop back to the 0.7050 area.

Analysts have cited favourable price action in the base metals space as benefitting the material export-dependent Aussie, as well as favourable conditions in the global equity space. But any meaningful break, say, above last week’s highs in the 0.7160s, will likely have to wait until after Thursday’s US inflation data, where the YoY rate of Consumer Price Inflation is seen rising 7.3% YoY.

FX strategists have said that even an in line with expectations reading could bolster Fed tightening bets, underpinning the US dollar. That suggests the more likely direction for AUD/USD may instead be a break back under 0.7100 and towards last Friday’s lows just above 0.7050. Chatter about the potential timeline of RBA tightening also remains a key theme for AUD/USD, after former RBA board member John Edwards said on Tuesday that he thinks the bank might hike four times this year starting in August.

The RBA is yet to indicate plans to tighten that soon. Analysts say they “stick to the view that the A$ should remain capped by the $0.7140/70 level given the very different stance that the RBA is maintaining versus a wide range of other central banks”. However, they continue, “we would look to use weakness towards $0.70 as an opportunity to buy for strength later in the year” he added, noting strong prices for Australia's major.

The tight trading conditions continued in AUD/USD overnight where it was constrained to a 0.7107/0.7144 range. Offering interest remains above 0.7200 while demand should materialise as we approach the 0.7050 region.

Event Risk Data Today

Aust: The February Westpac-MI Consumer Sentiment survey should be supported by the tentative signs of easing omicron impacts, although the shifting interest rates outlook may partially offset.

China: M2 money supply growth should remain steady in January and is ample for robust activity growth (market f/c: 9.2%). Meanwhile, new loans for January should point towards strong credit growth, setting the scene for an acceleration in investment throughout this year (market f/c: CNY3750.0bn). Note, the M2 and loan data is due 9-15 January.

Ger: Although trade surplus is expected to narrow in December, the outlook for 2022 is positive as the global recovery ensues (market f/c: €11.0bn).

US: The final estimate of December’s wholesale inventories will confirm the willingness of firms to work through supply issues and rebuild stock. The FOMC’s Bowman will speak to the Independent Community Bankers of America; meanwhile Mester will discuss the economic and policy outlook.

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