Risk Appetite and Equities Supportive of AUD
AUD
The AUD was subdued in a sleepy start to the week with most majors sitting at similar levels seen yesterday, except against the NZD which saw the AUD make minor gains and back above 1.07. What has given some relief for the AUD has been US equity markets, which extended their recent upward moves overnight with both the S&P 500 and the Dow Jones gaining +0.4% while the NASDAQ was higher by +0.2%. Commodities couldn’t entertain currency markets with Gold trading flat, Iron Ore up +0.2%, and Copper losing out -0.4%. With the highest new confirmed cases in over 10 months, Australia’s covid-led activity restrictions are likely to be stretched. Conditions in NSW becoming worrisome, pushing PM Scott Morrison, NSW Premier Gladys Berejiklian and other policymakers towards an aid package discussion overnight – further delaying significant economic recovery. Looking ahead, NAB’s Business Confidence figures for June, in conjunction with China’s Trade Balance, Imports and Exports for June will be the key data from Asia.
USD
The AUD/USD took some minor losses overnight to trade comfortably in the 0.74s, sitting at 0.7477 this morning. The US Dollar index (DXY) lost its footing at the highs of 92.541 to a low of 92.090 as some risk appetite returned with US Equities charging north, while US treasuries were steady. The US interest rate remaining flat with the US 10 Year Bond yield still hovering around 1.368%. Oil was 0.5% lower but trading just below its recent highs at $74.15 a barrel. The latest US CPI data released later tonight will be closely watched ahead of Fed Chair Jerome Powell's semi-annual congressional testimony on Wednesday and Thursday. This could provide fresh clues about the US central bank's near-term monetary policy outlook.
EUR
The AUD/EUR trading sideways sitting at 0.6302 this morning. European Equity indices were ticking higher into the close to generally end up around up +0.5%, though the FTSE was an underperformer as it closed only marginally in positive. ECB’s Lagarde told investors the central bank is preparing investors for a new policy format, signalling new measures might be brought in next year to support the Eurozone economy after Pandemic Emergency Purchase Programme (PEPP) ends. Still in the EZ and the Euro Area Economic Forecast for July showed the euro area economy expanding 4.5% in 2021, 4.3% in 2022 and 2.0% in 2023. With the GDP forecast for 2021 increasing from previous forecasts of 4.3% (while these GDP numbers seem high, remember we're coming off a low base and the initial surges in recovery are expected to be transitory). Looking ahead it’s a quiet week in Euro data with a variety of less notable releases scattered throughout.
GBP
The AUD/GBP following suit to trade in similar ranges, currently trading at 0.5384. Fresh data prints coming out of the UK are likely to sway the near-term outlook for GBP as BoE Governor Bailey insists that the “economy is bouncing back rapidly.” but the update to the Consumer Price Index (CPI) may put pressure on the Monetary Policy Committee (MPC) to draw up an exit strategy the headline reading is projected to increase to 2.2% from 2.1% in May, which would mark the highest reading since November 2018.
NZD
The AUDNZD was the only major pair that took some gains to sit at 1.0704 this morning. Markets were broadly calm to start the week amid a lack of data. Focus here will be on the RBNZ meeting tomorrow at midday, at which the Kiwi central bank has the opportunity to prepare markets for the journey back to a "normal" interest rate environment. Though it may be difficult for the RBNZ decision to generate a large move in the Kiwi "unless there is a large shift in the language" analysts at ANZ Bank said. Certainly tomorrow represents a chance for volatility in what has been a rather lacklustre AUDNZD.