US Fed Reserve in Action Tonight
AUD
The AUD was down against most major currency pairs during the overnight session, except for the NZD. US Equities took a step back last night, despite the 5bp drop in 10 year US Bond yields. Commodities had a mixed session, with Iron Ore gaining 0.6% and Copper dropping -0.5%. The VIX, which is an index that measures the level of risk and fear within the market, increased 10.1%. The AUD commonly thrives in a market with positive risk sentiment, as such the increased risk environment could have been another factor weighing on the AUD. As the Delta variant spreads throughout Australia and Sydney likely faces extended lock downs, its expected that investors may be pessimistic towards the Australian economy. Chinese and Hong Kong Equity markets saw another drastic decline on Tuesday, with the HSI index experiencing its largest decline since 2008. However, the ASX rose to its highest level ever of 7431.36 yesterday, this may have saved the Aussie Dollar from further downside. AUD Quarterly (Q2) CPI data is scheduled to be released at 11:30 today. While the data has been slightly overshadowed by macro concerns in light of recent lockdowns, if the results are able to beat expectations, the AUD could see some of the upside support it is desperately missing. However, there is some significant uncertainty surrounding the housing component of the CPI, which is a major influencer of Core Inflation.
USD
The AUDUSD lost out in the overnight session, currently trading in at a rate of 0.7365 at time of writing. US Equities struggled throughout last night, with the S&P500 and NASDAQ falling -0.5% and -1.2% respectively. Due to the AUD’s high correlation with US stocks (albeit diminishing over recent weeks), this could have also placed some downward pressure on the AUD. Some analysts believe the AUD’s sensitivity to US Stocks has begun to weaken, as negative risk sentiment and fears of a global growth slowdown express themselves in lower US Bond Yields. To the data overnight and US Monthly Durable Goods fell short of expectations, gaining 0.8% (vs exp 2.1%), the AUD was unable to capitalize on the poor data. In what is the biggest risk event of the week, tonight the FOMC has another press conference, where they will release the Federal Funds Rate. If the FED continues to become more Hawkish towards their tapering policy, the AUD could suffer drastically yet again. Remember last month the FED signalled an earlier than expected lift-off in interest rates (two rate hikes due in 2023) which strengthened USD dramatically. It is generally accepted that before rates go up, QE tapering will need to end, so there is every chance we get some details around such tapering tonight.
EUR
The AUD/EUR was also on the back foot here last night, currently trading in at a rate of 0.6229 at time of writing. European Equities were also down overnight with the EuroStoxx dropping 1%. Despite this, the AUD still struggled to come out on top. There is not much scheduled in terms of data for the EUR, with German and Spanish CPI booked in to be released tomorrow.
GBP
The AUDGBP has also dropped off during the overnight session, currently trading in at a rate 0.5301 at time of writing. The UK FTSE also dropped -0.4% to 6996, however the AUD still lost some modest ground. The UK daily Covid cases has continued to drop for seven days in a row, despite the recent relaxation of restrictions. If the UK is successful in living with the Covid-19 virus by having a highly vaccinated population, it could lead the way for other countries to follow, and offer an end to this pandemic. Fingers crossed. No significant data scheduled to be released.
NZD
The AUD/NZD was one of the only currency pairs to have gained against yesterday’s levels, currently trading at a rate of 1.0576 at time of writing. No significant data scheduled, with ANZ Business Confidence statistics due to be released tomorrow.