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Global Market Update
The View from Australia

by Craig Killaby | July 14, 2021

Data/Speakers

 

> AU July Westpac Consumer Sentiment : 1.5% v. -5.2% prev.

> NZ RBNZ Rate Decision : 0.25% v. 0.25% exp (no change)

> UK June H/line CPI & Core CPI : 2.5% & 2.3% v. 2.2% & 2.0% exp.

> US June Core PPI & H/line PPI : 1.0% & 1.0% v. 0.5% & 0.6% exp.

> CA BOC Monetary Policy Statement & Press Conference : 0.25% v. 0.25% exp.

> US EIA Crude Oil Inventories : -7.9Mio v. -4.3Mio exp.

 

Overnight Headlines (BBG)

> NSW has extended the lockdown period until at least the 30th July, although widely expected to last past that date with cases elevated

> US Fed Chair Powell was dovish in his testimony, commenting that the recovery is still a ways off and that accommodating policy is not going anywhere for the time being

> The Bank of Canada kept their benchmark rate unchanged, however trimmed their QE program from $3bio/week to $2bio/week as inflation forecasts were revised higher as the reopening of the economy gained momentum

> The RBNZ has decided to end their QE program this month, citing strong house prices and economic recovery as the path is set for a quicker than expected rise in their benchmark lending rate

What you need to know

With the data docket relatively light locally, it was the Kiwis that led the move higher for the APAC currency pairs as investors positioned for what was likely to be a hawkish tone from the RBNZ. In a surprising move from a Central Bank, they seemed to have delivered on expectations as they decided not to taper their bond buying program, but to end it altogether, as the economy continues to perform well. Investors had not priced in the impact that an outright end to the program would have on bonds, with the NZD soaring higher in both the lead up and the aftermath of the meeting and is the best performing major on the day. Interesting move as the RBNZ had positioned for negative rates less than a year ago, proving the uncertainty that the last year’s events has for those making policy decisions. The AUDUSD followed its cross Tasman counterpart higher, although was weighed down by heavy selling of the AUDNZD cross down 0.75%. NZDUSD is up well above 0.7000 and gained 1.3% against the Greenback.

 

Inflation remains top of mind after a brief reprieve, with UK numbers printing in early Europe and igniting a bout of risk aversion across some of the majors. The AUDUSD was sold off into London, touching a low of 0.7431 before recovering. Bank of Canada’s interest rate decision also delivered on market estimates, as they continue to move ahead on their hawkish path by paring back their QE program by 33% and revising their inflation forecasts higher. The Loonie opens up largely unchanged against the USD, impacted by the sharp move lower in the price of WTI crude, which is down 3% on the day.

 

The main event was the head of the Federal Reserve’s testimony in Washington DC, and he was the lone Central Banker on the session that took a dovish tone. Powell noted that inflation was going to be higher than expected during the transitory period, however he does not believe that the US is in any position to remove any of their accommodative policy initiatives. The Dollar is down across the board, with the DXY off 0.45% for the session as UST yields fell across the curve, as the shorter end led the fall. US equity markets held on to marginal gains, however it seems as though prices are on a knife edge at historically high levels. Gold performed very well in the wake of the move lower in rates, up 1.10%. While Base metals are lower to open up this morning, with Copper down 0.6% and Iron Ore off 0.85%. Mixed bag on the AUD crossed, with the biggest mover AUDNZD as the Kiwi looks like a strong buy on the crosses following the hawkish tone.

 

The Day Ahead

 

Data

 

> AU June MI Inflation Expectations : 4.4% prev.

> AU June Employment Change & Unemployment Rate : 19.7K & 5.1% exp.

> CN Q2 GDP : 8.0% exp.

> CN June Fixed Asset Investment & Industrial Production : 12.1% & 7.8% exp.

> CN June Retail Sales & Unemployment Rate : 10.9% & 5.0% exp.

> UK June Claimant Count Change & Unemployment Rate : -32.5K & 4.7% exp.

> US July Philly Fed Manufacturing Index : 28.1 exp.

> US Unemployment Claims : 350K exp.

> US June Industrial Production : 0.6% exp.

> US Fed Chair Powell to testify

> US FOMC Member Evans to speak

 

After the extension of the lockdown in NSW yesterday, the focus now shifts to some of the data as June employment numbers are unlikely to show the impact of the lockdown, as it was missed by the survey period. Expecting little movement on the jobs figures, with the Chinese Q2 growth numbers and accompanying data dump the key event risk.

 

A miss on the GDP numbers may see the AUDUSD trickle lower back towards the 0.7430 level where it seems to be finding some light support. Overnight, commentary from US Fed Chair Powell will be important as he continues his testimony. Not expecting much movement this morning, with consolidation into the mid-day data the key in Asia. NZDUSD still seems like a strong buy candidate as the major banks are now calling for a rate hike in August. Wide range to reflect the Q2 Chinese growth risk.

 

Range Today : 0.7425 – 0.7520

 

AUD/USD Technicals

 

As noted yesterday, 0.7500 seems to be a tough hurdle for the pair, this even despite the move from the RBNZ and the weak USD. One has to believe the extended lockdown across NSW is weighing heavy on the AUD, likely seeing the RBA’s hands tied as they wait and see on how long this lockdown lasts. Need to see 0.7500 broken to bring 0.7525 back into focus, while 0.7430 is offering light support ahead of the YTD low of 0.7410.

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