Lockdowns are not Deterring the RBA's Strategy

AUD

The AUD had some momentum and gained across most major currency pairs; the NZD excluded which has had a strong start this morning after stellar employment data (see NZD section at bottom). Local Equities were down, the ASX made losses of -0.2% while both the Shanghai Comp and Nikkei were down -0.5%. Commodities were mixed although relatively subdued, Silver was up 0.1% and Gold made no movement while Iron Ore and Copper were both down. The reason for the Aussie rally yesterday was the RBA's decision to leave the official cash rate unchanged at a record low 0.10%, and also indicate a further tapering of QE to begin in November. Specifically, the RBA will continue to purchase government securities at rate of $5 Billion per week until early September and then $4 Billion a week until mid-November. This 'steady as she goes' approach from the RBA in the face of the widespread and severe lockdowns surprised markets to a degree, which were expecting some degree of softening in the RBA's tapering pathway, thus the gains made by the AUD. Interesting points of note are that the RBA's central model includes full vaccination by the end of the year and a staged reopening of international borders by mid next year. To the local data ahead, Retail Sales for June are due today with expectations of a figures being -1.8%, the same as the previous month.

USD

The AUDUSD pair struggled to extend much of its gains, led by the RBA’s hawkish tilt yesterday afternoon, gaining to as high as 0.7408 before seesawing back to trade at 0.7393. Yesterday the RBA offered a positive surprise to markets by keeping September tapering steady despite the recent covid woes, fueling the AUD/USD rally. US equities traded firmly overnight with the S&P 500 and the Dow Jones both climbing 0.8%, while the NASDAQ was 0.5% higher. US interest rates were mostly unchanged and the 10-year note yield remained at a low 1.174%. On the docket this week, US ADP non-farm Employment Data due tonight and then the official Non-Farms Employment results on Friday night.

EUR

The AUDEUR pair made minor gains overnight, trading at 0.6232 at the time of writing. The small rally had come after yesterday's hawkish approach from the RBA as they kept September tapering on the table and dished up more tapering for November. European stocks were mixed overnight, the CAC made gains of 0.7% while the DAX was down -0.1%. Some early European Data Eurozone PPI MoM met expectations of 1.4%, while PPI YoY slightly missed expectations of 10.3% coming in at 10.2%. It’s a data filled day ahead with the Eurozone PMI’s due in addition to Eurozone Retail sales.

GBP

The AUDGBP pair followed suit to make a gain overnight, trading at a rate of 0.5314 at the time of writing. The London Benchmark FTSE gained 0.3% overnight. In early news this morning its reported that the UK had 138 covid related deaths overnight, the highest number of deaths since March 17th and the latest figures also showing another 21,691 covid cases reported across the country. Some 38,590,332 people are now double jabbed (about 60% of total population), with another 126,307 people getting their follow up shot in the latest data. Markets won't be wanting to see a sustained rise in the death toll, as there are many countries (Aus included) that are hoping the UK can illuminate a path back to normal with its current strategy of no lockdowns. Little in the way of data this evening with only the UK Final services PMI’s due, markets and investors awaiting the BOE Monetary Policy Meeting on Thursday evening.

NZD

The AUDNZD pair shot to as high as 1.05781 yesterday, led by the RBA’s hawkish tilt before coming in to trade at a loss of 1.04957 this morning. The recent dive was due to the recent Q2 Labour market data from NZ this morning. The seasonally adjusted unemployment rate fell to 4.0 percent in the June 2021 quarter, down from 4.7 percent last quarter, largely beating expectations of 4.4%. With wage prices also increasing, there are now very few hurdles for the RBNZ to increase interest rates on 18th August. NZD strength is most likely on the cards today as markets weigh the timing of a seemingly inevitable RBNZ rate hike. No other noteworthy data today.