19th August 2021 - AUD lower as US FED talk about reducing stimulus

Market Headlines

Markets maintained their risk averse mood overnight as they digested the US Federal Reserve’s latest meeting minutes and talks about reducing stimulus. The Dow Jones index fell by 383 points or 1.1%. The S&P 500 index also shed 1.1%. And the Nasdaq index dropped 130 points or 0.9%.

In its July 27-28 meeting minutes, the US Federal Open Market Committee (FOMC) said, “Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year.”

The Aussie dollar eased from highs near US72.65 cents to lows near US72.27 cents and was near US72.35 cents at the US close which is where we are this morning.

Commodities: The Brent crude price fell by US80 cents or 1.2% to US$68.23 a barrel. Base metal prices mostly fell on Wednesday. Copper slid 2.2% on Chinese demand concerns, but lead rose by 1.9%. Spot gold was trading near US$1,787 an ounce at the US close. Iron ore lost US$6.45 a tonne or 4.0% to US$153.05 a tonne as BHP warned about a possible reduction in China's steel output this year.

Overnight Currency Range

Currency Pair Low High

AUD/USD 0.7229 0.7269

EUR/USD 1.1693 1.1743

GBP/USD 1.3730 1.3786

USD/JPY 109.48 110.07

NZD/USD 0.6868 0.6951

USD/CAD 1.2598 1.2657

USD/CNH 6.4800 6.4930

AUD/JPY 79.220 79.780

AUD/NZD 1.0455 1.0543

AUD Thoughts AUD/USD traded in a 0.7229/.7269 range overnight and further demand is expected ahead of 0.72c while offering interest has followed spot lower and likely rests ahead of 0.7315.

Australia’s labour force data will come into focus today. This release will capture the initial effects of lockdowns in Sydney and other parts of Australia (the survey reference period is 4-17 July). Markets expect employment to have fallen by circa 70k m/m but hours worked are likely to have fallen more sharply than employment. Mobility restrictions will have limited the ability to look for work and as a result we only expect the unemployment rate to have increased modestly (from 4.9% to 5.1%) as labour force participation likely declined. There is significant uncertainty how employees stood down without work will classify themselves, including because there were no government policies to tie stood-down workers to their employers in early July. The FOMC Minutes noted that the standard of “substantial further progress” for the US economy had not been met though it was considered likely that it could be achieved later this year. It was suggested that it would be prudent for the FOMC to start preparing for a tapering of asset purchases though this should not be interpreted as a pre-determined step towards raising rates while it was also noted that inflation was likely transitory and COVID and the effects on the economy remained a string factor in determining timing if those effects were worse than currently anticipated. Markets seemingly looking for a more hawkish result with the USD modestly weaker in the aftermath of the release with majors generally moving back towards the middle of their daily ranges. Event Risk Data Today Australia: Today's labour force data are expected by markets to see the participation rate drop from 66.2% to 60.0% and the unemployment rate is forecast to move up from 4.9% to 5.0%. US: Initial jobless claims tonight where the market is forecasting a dropr from 375k persons last month to 363k this month. NZD: The Kiwi Dollar was once again in focus on Wednesday as the RBNZ responded to the nationwide lockdown by keeping rates on hold. NZD/USD fell to 0.6868 following the announcement. NZD/USD bounced after Governor Orr gave his press conference as he said the clear direction is to lift the cash rate with the NZ economy in a good position to maintain momentum even if the lockdown is prolonged. NZD/USD recovered all of the losses and traded up to 0.69515.

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