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Global Market Update
The View from Australia

Craig Killaby February 21, 2021



> NZ Q4 PPI Input/Output : 0.0% & 0.4% v. 0.1% & -0.2% exp.

> AU February Flash Manufacturing & Services PMI : 56.6 & 54.1 v. 57.2 & 55.6 prev.

> AU December Prelim Retail Sales : 0.6% v. 2.1% exp.

> UK January Retail Sales : -8.2% v. -3.0% exp.

> EU February Flash Manufacturing & Services PMI : 57.7 & 44.6 v. 54.6 & 45.9 exp.

> UK February Flash Services & Manufacturing PMI : 49.7 & 54.9 v. 42.1 & 53.1 exp.

> CA December Core Retail Sales & Retail Sales : -4.1% & -3.4% v. -2.4% & -2.5% exp.

> US February Flash Manufacturing & Services PMI : 58.5 & 58.9 v. 58.4 & 57.9 exp.


Weekend Headlines (BBG)

> Former UST Sec. Summers commented that the Fed may be forced to raise rates sooner than expected, sending yields higher across the curve

> Commodity currencies performed well against the USD as the AUDUSD touched yet another multi-year high as commodity prices continue to soar

What you need to know

A strong day for the AUD and the NZD on Friday, finally breaking through resistance and seeing the AUD set yet another YTD high at 0.7877. The data on Friday in AU was relatively lacklustre, with retail sales figures missing market expectations, it looked as though the AUD was poised to test support below the 0.7760 level. That was not to be, as the continued positive news from the UK and their widespread vaccination program has supported risk appetite and the GBP, with the Pound sitting above the 1.4000 level as I write this morning. The PMI data across Europe was not as bad as initially thought, although the services sector continues to rebound at a slower than hoped pace, the manufacturing numbers have remained stable despite the lockdowns. It was a tough day for the USD, with the DXY down 0.25% and looking ready to break the 90.00 level as investors have one eye on the US stimulus package this week. Eyes are on bonds, as the market short position continues to mount, yields are rising across the curve and raising some alarm bells for the Fed as they are sitting between a rock and a hard place, juggling the task of supporting the recovery while keeping borrowing costs low. Fed Chairman Powell is on deck to deliver a testimony this week, where the rising borrowing costs may force a change in policy as yield curve control may be required.


There was also some positive commentary on the health front in the US, with a doctor from John Hopkins University commenting that the US is likely to reach herd immunity by April, a big positive for risk sentiment. PMI numbers in the US also helped risk appetite and flows away from the USD, with both the services and manufacturing numbers beat the street estimates. The AUD has surged to a multiyear high, with the 0.7900 level looking an inevitability at this stage. The crosses are also all looking very strong, with AUDEUR approaching 0.6500 while AUDCHF is up 1.3% as risk aversion becomes a thing of the past. Equity markets did not follow the move higher, as the surge in US bond yields concerning equity investors as premature increases in interest rates the worry there. Commodity prices rather mixed, although the price of Copper is a major story up 4.2% as the commodity green trade is well and truly on. WTI crude took a breath from its recent highs, down over 2%. Gold rallied on the weaker USD, up 0.5% as inflation expectations continue to increase.


The Day Ahead




> EU February German IFO Business Climate : 90.5 exp.

> US January CB Leading Index : 0.3% prev.


With the data docket very quiet, the question will be how does the FX market react to the move higher in global bond yields and the continued breakdown of the USD. The RBA is in a precarious position, with the central bank likely none too pleased with the surge, there is little they can do until next week’s March decision.


The RBNZ meets on Wednesday, with commentary on the surging NZD watched closely as the recovery continuing in NZ. While in the US, eyes are on the Fed as they attempt to navigate the difficult path of surging yields with Powell on the wires this week. US stimulus talks are expected to continue, with a passage of a package the likely catalyst of a move even lower in the USD. Should be a choppy start to the session as the AUD opens at multi-year highs, with concerns mounting for exporters.


Range for the day : 0.7835 – 0.7920


AUD/USD Technicals


Tough to be anything but bullish with the pair opening up at the highest levels since March 2018. The break of 0.7820 was seamless, with the pair now looking to test resistance seen at 0.7900 with 0.7917 the target. Support seen at previous resistance, with some trimming of longs potentially seeing a move down toward 0.7820, with the 50DMA at 0.7692 supportive.