J Powell Separates Imminent Taper from Rate Hikes
AUD
The AUD finished last week strongly, pushing higher against most major currency pairs, fuelled by commodity gains and broader USD weakness (see below). Asian Equities were mixed, with the Shanghai Comp gaining a minor 0.6% while the Nikkei posted a loss of -0.4% and the ASX closed at no movement of 0%. Commodities had an impressive session and continued their resurgence with Iron Ore up 3.6%, Silver up 2.1% and Gold gained 1.4% to maintain its $1818/oz, a one-month high. It’s a quiet data day ahead, but should be a busier week with Australian GDP due on Wednesday, in addition to the monthly housing prices, building approvals and lending finance which will provide insight into the developments in housing market activity. Retail Sales on Friday are also set to show a third straight month of contraction reflecting the state of lockdown for more than half of the country.
USD
The AUDUSD continued to push higher over the weekend, finishing the week 2.5% higher and sitting at a rate of 0.7309 at the time of writing. A Dovish tone in the the Fed Chair's Speech on Friday night was good for US Equities as markets moved out the anticipated timings of rate hikes which would allow currently ultra-loose monetary policy settings to be supportive of businesses for longer. The Nasdaq rallying 1.2%, the S&P 500 up 0.9% and the Dow finished 0.7% higher. Jerome Powell's measured tone weighed on US yields with the 10-year falling 4bps to 1.31% while oil finished the session up 1.9% at $68.70 a barrel, and the US Dollar index (DXY) dropped to a two-week low (0.4%). In what could be his final speech leading the Fed Reserve, Fed Chair Powell delivered a robust defence of the central bank’s monetary policy in the era of Covid. He acknowledged gains in the job market though noted substantial labour market slack remained and much ground needed to be made to reach full employment. On inflation he said that current inflation was concerning though likely to be temporary and that long-term inflation expectations remained consistent with the 2% goal. He noted that it could be appropriate to being tapering this year though said that an ill-timed policy move could be particularly harmful and that tapering did not convey any direct signal as to the timing of rate hikes. To the data, the ISM manufacturing PMI and the employment report are the key releases to watch this week.
EUR
The AUDEUR pair continued the trend to make a gain over the weekend, currently trading at a rate of 0.6194 this morning. European Equities closed relatively flat over the weekend with the DAX up 0.4% and the CAC posted minor gains of 0.2%. In early data, French consumer confidence has dipped for a second consecutive month to 99 missing expectations of 100. The Italian consumer confidence index also slightly missed expectations of 116.3, printing at 116.2. A quiet start ahead for a data-filled week, with the Eurozone Manufacturing & Service PMIs to headline this week’s releases.
GBP
The AUDGBP followed suit to make a gain with the pair currently trading at a rate of 0.5310 at the time of writing. There’s been increasing pressure surrounding the booster jabs for the vulnerable as covid cases in England are reported to be 26 times higher than a year ago with warnings that the reopening of schools in England this week was likely to trigger further rises in covid cases. As a result, pressure has been mounting on the Joint Committee on vaccination and immunization to approve the deployment of booster jabs and the extension of vaccinations to most 12-15-year-olds. On Sunday, the UK recorded another 33,196 covid cases and 61 deaths in the latest 24-hour period, government figures show. Little in the way of data for the Pound with a Bank Holiday today to start the week off.
NZD
The AUDNZD pair bucked the trend to trade at similar levels seen to last week, the pair offering a rate of 1.04299 this morning. In NZ, 83 new community cases of Covid were reported on Sunday, which is the largest daily increase of New Zealand’s delta outbreak, bringing the outbreak total to 511 with nearly 33,000 individual contacts of covid cases being identified, the majority being of close contacts. PM Ardern’s tough lockdowns and international border closure in March 2020 helped reign in COVID-19, but the government now faces questions over a delayed vaccine rollout, as well as rising costs in a country heavily reliant on an immigrant workforce. Just about 21% of the country’s 5.1 million people has been fully vaccinated, the slowest pace among the wealthy nations of the OECD grouping. No noteworthy mentions for data this week with the escalating covid outbreak and commodity movements to be the key drivers ahead.