AUD Rides Wave of Positive Sentiment and Strong Commodities

AUD

The AUD gained momentum across most major currency pairs as market sentiment boosted the commodity backed currency. Asian Equities were largely higher with both the Nikkei and the Shanghai Comp rallying 0.7%. The ASX 200 fell slightly by almost 0.1% to 7,375 points as Australian shares lost their gains and ended unchanged. Commodities were mixed across the board with Iron Ore gaining 0.8% while Copper and Silver both dipped -0.9%. In the main event on Tuesday, the RBA released the minutes of their last meeting. They said that higher interest rates would help lower upward prices in the real estate market, though it would come at the cost of fewer jobs and weaker wages growth. Furthermore, the minutes revealed that such a move would distance the bank from achieving monetary policy goals, namely, full employment and inflation around the 2-3% target. RBA policymakers have been vocal about not raising rates to help them cool off the real estate market, as they try to increase the pace of wage growth and return inflation to the 2-3% target. Despite the aforementioned, investors have increased the odds of an interest rate hike in 2022. Little in the way of local data with the MI leading index being the only mention.

USD

The AUDUSD surged yesterday, touching fresh three-month fresh highs, currently trading at a rate of 0.7472 this morning. A positive market mood surrounds the financial markets as all three major US Equities gaining overnight after earnings season continued to deliver positive results. As we know well, the AUD performs well when investors are confident and vice versa. US 10-year yields regained some lost ground on its way to 1.637% while oil finished the session fractionally higher. In overnight data from the US, the NY open saw US Housing Starts in September fall by 1.6% to 1.555mio to come in worse than expectations of a 0.2% decline to 1.613mio. Building Permits fared much worse with a decline of 7.7% to 1.589mio, again much weaker than expectations of a 2.4% contraction to 1.680mio. No reaction to the data. This evening markets will see the release of the Fed Beige Book. The Federal Reserve Beige Book will inform the upcoming policy decision on November 3rd. Any signs of changes in the growth trajectory or further evidence of labour shortages and rising wages could be of particular importance. US Industrial Production is also on the docket; numbers are expected to show strain on continued supply chain bottlenecks.

EUR

The AUDEUR soared into fresh five-month highs, with the pair trading at a rate of 0.6421 at the time of writing. AUD enjoying the upbeat market sentiment. European Equities were mixed on Tuesday with the DAX up 0.3% while the CAC closed with almost no movement 0%. Little in the way of data in the Eurozone with European Central Bank (ECB) chief economist Philip Lane said on Tuesday that it is challenging to reconcile the market rate pricing with forward guidance, as reported by Reuters. "Markets may not have fully absorbed the ECB's forward guidance," Lane added. In general, the ECB is offering up a pretty downbeat assessment of Eurozone economic performance, commenting that there's still plenty of slack across Europe and that the lift off for interest rates is a distant goal. It’s a busier day ahead with the Eurozone CPI and UK GDP data being the key focus this evening.

GBP

The AUDGBP followed suit to print fresh highs overnight with the pair currently trading at a rate of 0.5417 at the time of writing. The London Benchmark FTSE 100 added 13 points (0.19%) by the days end to sit at 7,218 points. The yield on UK two-year bonds jumped to its highest level since May 2019, another sign that traders were rapidly reassessing the prospects of a 2021 rate hike, the two-year yield jumped as high as 0.75% up from 0.57% on Friday night. A lack of local macroeconomic data will see investors focus on this evenings UK CPI Data. UK CPI should help shape expectations for November’s Bank of England policy decision. Already, official rhetoric has persuaded the rates market that a 15bp rate hike on Nov 4th is 50% likely, and all but certain by December.

NZD

The AUDNZD bucked the trend to trade at a loss this morning with the pair trading at 1.04511. Yesterday, New Zealand has hit its highest daily case number since the pandemic began. 94 new Covid-19 infections announced on Tuesday, as experts warned that cases would probably keep rising, and sustained high numbers could quickly push the health system to capacity. Prime minister Jacinda Ardern said the rise in Covid cases was “incredibly hard,” and urged people to get vaccinated and to continue following the rules. “We’re not powerless, we do have the ability to help keep cases as low as we can,” she said. There is no local data on the docket with markets likely focusing on macroeconomic data in the US.