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Global Market Update
The View from Australia

by Craig Killaby | February 25, 2021



> NZ February Final ANZ Business Confidence : 7.0 v. 11.8 prev.

> AU Q4 Private Capital Expenditure : 3.0% v. 1.1% exp.

> EU February German GFK Consumer Climate : -12.9 v. -14.0 exp.

> US Q4 Prelim GDP : 4.1% v. 4.2% exp.

> US Unemployment Claims : 730K v. 828K exp.

> US January Core Durable Goods Orders & Durable Goods Orders : 1.4% & 3.4% v. 0.6% & 0.9% exp.


Overnight Headlines (BBG)

> US bonds took a nosedive, with yields across the UST yield curve rising sharply and sending risk assets lower as emerging market currencies felt the brunt of the move

> US President Biden is seemingly continuing on from Trump with his stance on China as the trade chief nominee reiterated their demand for China to live up to the trade agreement

What you need to know

The AUDUSD had a very wide trading range yesterday, with the pair rising to the highest levels since Feb 2018 and breaking through the 0.8000 handle, albeit very briefly. The momentum continued to build for the Aussie yesterday despite the most significant action from the RBA into the bond market since their announcement, buying AU$3bio worth of 3yr ACGBs to defend their yield curve target. However, the reaction in the currency was limited with the softening up the AUDUSD short lived going into London as commodity prices continue to support the currency as the prospect of a global rebound takes over. However, this was short lived into the overnight session as the story of the day came in the US bond markets with yields skyrocketing across the UST curve with the yield on the UST10y breaching the 1.60% level and sending alarm bells to risk assets. It was one way traffic lower for risk assets with the AUD and NZD feeling the pressure although the NZD outperformed its Tasman counterpart. The AUDUSD touched a low of 0.7874 in the bond rout, with the crosses all mostly lower on the session. The Dollar was up, although opens up this morning down a touch in DXY terms. The S&P500 was down as much as 2.6% before paring losses and down 1.4% at the time of writing. Commodity markets also took a hit with the exception of WTI crude, still bolstered by the prospect of an increase in demand as the world reopens. Copper is down 0.9% while Gold is down another 1.2%.


The Day Ahead




> NZ January Trade Balance : -630M exp.

> NZ RBNZ Gov. Orr to speak

> AU January Private Sector Credit : 0.3% exp.

> EU January German Import Prices : 1.1% exp.

> US January Core PCE Price Index : 0.1% exp.

> US January Goods Trade Balance : -83.0Bio exp.

> US February Chicago PMI : 61.0 exp.


Bonds have become the main story in financial markets, with the continued move away from sovereign debt causing concern for the investors everywhere. Central banks will have to grapple with the new reality, and for local investors we will get the RBA next Tuesday with their response into rising yields eagerly anticipated. It is going to be an interesting session today for FX markets, with equities likely to have a very tough day following the lead in from Wall Street eyes will be on the PCE index numbers as inflation concerns also mount this evening. The move back towards 0.8000 may be off the cards today, with Dollar demand possible for EOM.


Range for the day : 0.7860 – 0.7950


AUD/USD Technicals


Well, the move above 0.8000 was short lived and although the likelihood of a move higher in the medium term remains likely short term risk aversion seems to be on the cards following the bond move. The pair is likely to find support around the 0.7880 level, with the 50DMA now sitting at 0.7714 providing a target on moves lower. The three year high of 0.8007 set overnight will be the resistance with 0.7988 still providing a hurdle.


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