Sydney Covid Restrictions Cause for Concern

AUD

The AUD displaying some strength overnight to make gains against most majors even after taking a minor tumble yesterday. The AUD was placed under early pressure during yesterday's local session with the news of two new covid cases in Sydney which resulted in authorities reintroducing restrictions for businesses and capacity limits for the greater Sydney area from 5pm. The other major catalyst that may have been a contributing factor to the initial fall was the continuing diplomatic tussle between China and Australia. China’s top economic planner, the National Development and Reform Commission (NDRC), said on Thursday it had “indefinitely suspended” its participation in the China-Australia Strategic Economic Dialogue. AUD managed to turn around the tough start overnight though, US Equity Indices making gains with the S&P 500 and the Dow Jones both rising +0.9% while the NASDAQ was trading +0.4% higher. In what is the highlight for today's session, at 11:30 this morning we’ll see the RBA’s Monetary Policy Statement which is likely to reiterate the same message: monetary policy is expected to stay accommodative until inflation is persistently at least at 2.5%. Also some light Chinese data on the cards for today in Caixin Services PMI and Trade Balance figures.

USD

The AUDUSD saw that initial drop before pushing north to trade higher at 0.7782 this morning. The USD was generally weaker across the board with the DXY losing ground to sit at 90.895 this morning, down from 91.286 at the same time yesterday. Dallas Federal Reserve Bank President Robert Kaplan again went against the grain, reiterating his support for tapering sooner rather than later, but was ignored due to his non-voting-member status. Oil fell by 1.1%, losing the $65 mark which placed pressure on the Greenback. US Unemployment claims were stronger with only 498K claims, less than the forecasted 540K, but still a long way to go before the US fully heals from the pandemic damage, improvement has accelerated in recent weeks as restrictions on activity continue to be lifted. Later tonight the US will release the major piece of US data for the week with the official jobs data, with Bureau of Labour Statistics Employment Rate, Non-Farm Employment and Monthly Hourly Earnings to be released.

EUR

The AUDEUR also followed suit with the initial drop but only managed to recover to similar levels seen yesterday morning, trading at 0.6450 at time of writing. European markets were higher with the FTSE up +0.5% while other European indices gained around 0.2% on the day. ECB President Christine Lagarde spoke yesterday and said that Europe needs to develop a “green” capital market union to generate cash for sustainable investment and remain the location of choice for investors, however currency markets weren’t moved by the news. Lagarde will speak again this evening, maybe this time we will see more insight into clues about interest rate movements.

GBP

The AUDGBP performed strongly to make gains overnight, sitting at 0.5601 this morning. Amid rising vaccination rates and receding Covid-19 transmission, the Bank of England has upgraded its assessment for the coming months. Despite this, BoE Governor Andrew Bailey and his colleagues announced that rates would be left unchanged, and that the total stock of purchase would remain unchanged at £895 billion, but that the monthly rate would slow down. They still continued the rhetoric that they don’t expect to tighten until there is “clear evidence” of a rebound. Markets were disappointed with this bearish approach from the BoE which opened the door for the AUD gains. Later tonight, BOE Deputy Governor Ben Broadbent will speak and might add some follow up commentary to yesterday’s meetings.

NZD

The AUDNZD also found strength to make gains overnight to trade at 1.0765 this morning. Preliminary ANZ Business Confidence data came in strong, with a positive score of 7.0 indicating businesses are optimistic economic recovery. NZ PM Jacinta Ardern announced yesterday that New Zealand had put a pause on all flights out of NSW, amid the state reporting two locally acquired cases of COVID-19 in the past 24 hours.