AUD Under Fire as Iron Ore Price Deteriorates
AUD
It was a quiet session in currency markets over the weekend with most majors, AUD limping into the weekend after what was a week of heavy losses. Commodities have been under the pressure over the last week or so but managed to find some resurgence with Iron Ore gaining +1.6% and Copper the big mover taking +2.2% gains, though Gold remaining flat. US Equities were ticking higher with the Dow Jones up +0.6%, S&P 500 up +0.8%, and the Nasdaq gaining +1.2%. Equities and Commodities support wasn’t enough to outweigh the overwhelming risk-off sentiment in the market at the moment as the AUD looks vulnerable to any further deterioration of the Covid situation locally. This morning the data has already started poorly, with Flash Manufacturing and Services data both declining from the prior month with the Manufacturing component showing a large deceleration at 0.51.7 (56.9 prior) and Services recording the lowest level since May last year at 43.3 (44.2 prior). Local data for the week ahead is sparse, so risk sentiment surrounding Covid developments, USD strength and waning commodity prices likely to be the majors influencers on AUD.
USD
The AUDUSD is trading even since Friday with little data releases of note to sway markets, currently trading at 0.7317. The Greenback has remained in demand as currency markets turned to the safer assets on the fear that the coronavirus Delta variant could derail global economic recovery just as central banks begin to roll back COVID-19 pandemic induced stimulus. Illustrating the USD strength, the DXY (which measures USD strength against a basket of currencies) is now at the strongest level since November last year at 93.45. Looking ahead, some flash Markit PMIs for August will be released later tonight, but the annual Jackson Hole Symposium, held in Jackson Hole, Wyoming, attended by central bankers, finance ministers, academics, and financial market participants from around the world will be the main event. It could even provide the platform for Jay Powell to give us firm dates for the much anticipated US stimulus tapering.
EUR
The AUDEUR is marginally lower to trade at 0.6103 this morning. On Friday, German PPI MoM beat expectations of 0.8% printing at 1.9%, reflecting some green shoots and bringing policy normalisation closer, though the ECB is assuring at every opportunity that it will not rush to wind down asset purchases. European equity markets moved into positive territory in late trade with gains of around 0.3% for the DAX and CAC whilst the FTSE was only a tad stronger, gaining +0.4%. It’s a busy day ahead for the Euro area with today’s flash PMIs likely remaining firm with the rapid vaccine rollout supporting improvements in activity, despite the spread of Delta. Consensus suggests that the composite PMI will likely fall slightly to 59.6, against a previous reading of 60.2.
GBP
The AUDGBP following the trend with minimal movement in markets, sitting at 0.5239 at time of writing. In the late Friday data, UK retail sales missed the mark and fell sharply in July, dropping -2.5%, missing expectations of a +0.2% rise. The UK joins the rest of Europe in publishing some Flash PMIs this evening, with little data out of the Brits for the rest of the week with health conditions the biggest catalyst in market conditions currently.
NZD
The AUDNZD dropped off on Friday despite restrictions being extended in New Zealand, trading at 1.0449 this morning. Covid-19 response minister Chris Hipkins said the variant "changes the game considerably" and makes existing protections "look less adequate". It comes as the country announced a further 21 confirmed cases in the latest outbreak of the virus. Prime Minister Jacinda Ardern says they still don't know the extent of their Delta outbreak, which has been linked to a traveller from Sydney. All eyes on the health conditions across the ditch as it will directly affect the RBNZ's willingness to raise rates.