Fed Members Eyeing 2022 Lift-Off

AUD

The AUD was mixed overnight, trading below or flat against levels seen the same time yesterday morning. Yesterday's Australian Retail Sales for June showed a decline of 1.8% as expected but the AUD had no reaction to the data. In China, the Caixin Services Purchasing Manager's Index (PMI), a gauge of China's services sector activity, rebounded in July to 54.9 from June's 14-month low of 50.3, marking an accelerated expansion of services activity. A rise in domestic coronavirus infections, however, is threatening to hurt the economy's steady recovery. Overnight US Equities were lower with the S&P 500 falling -0.5%, while the Dow Jones was -0.9% lower. The technology sector with some resilience as the NASDAQ finishing up +0.1%. The AUD would have felt the hurt of a cool-off in commodities as Iron-Ore taking significant losses of -3.2%. Copper also losing -1.3% but Gold managed to avoid the carnage as it was trading flat on the day. A quiet day locally, with Australia’s trade balance report unlikely to impact the market. Tonight the Bank of England is in action and tomorrow morning markets looking for any change in language from the RBA’s Gov Lowe.

USD

The AUDUSD is trading lower off the back of some Greenback strength, sitting at 0.7380 this morning. USD strength was attributable to hawkish commentary from US Fed Officials, and some strong PMI data. US Markit Services PMI for July was revised up to 59.9 from an initial reading of 59.8 with the Composite PMI up to 59.9 from 59.7. Of more importance, ISM Services for July rose to a record high of 64.1, up from 60.1 and easily beating expectations of 60.5. US Federal Reserve Vice Chairman Richard Clarida and Treasury Secretary Janet Yellen both spoke just as the PMI data was released, with the former raising hopes of tapering in 2021 and rate hikes by late 2022, if core inflation hits 3% this year. Treasury Secretary Yellen said, per Bloomberg, “By the end of this year inflation will be running at a level consistent with the Fed’s target.” This upbeat commentary renewed strength in the Greenback, but interestingly, US 10 Year Yields still remained flat. Tonight, we’ll see if Unemployment claims have been impacted by some poorer than expected ADP Non-Farm Employment Change, with only 330k jobs gained below expectations of 695k.

EUR

The AUDEUR is trading on par with the levels seen yesterday, with only a handful of peripheral data releases from Europe overnight, currently sitting at 0.6234. A variety of Services PMIs from Spain, France, Italy, and Germany were released but couldn’t entertain currency markets. European Equities were pushing some minor gains with the DAX the strongest performer, rising by 0.9%, with the CAC and the EuroStoxx600 ending the day up by 0.33% and by 0.61% respectively. Looking ahead, impetus will be taken from market conditions and progress as Europe continues to rollout vaccine programs, with no major macroeconomic data scheduled for the rest of the week.

GBP

The AUDGBP also trading even, currently at 0.5314. It was also a quiet one out of the Brits with only Final Services PMI being released to align with Europe, beating forecasts but didn’t entertain markets. The real show will be the BoE and it’s Monetary Policy Summary being released at 9pm tonight. The BoE monetary policy update will coincide with the release of the quarterly Monetary Policy report which will likely shed some much-needed clarity as to whether a 2022 interest rate rise will happen. Markets are expecting the bank to announce no significant changes, but they will adjust their forecasts and give guidance of its Quantitative Easing programme. Potential for GBP strength here.

NZD

The AUDNZD was weaker after some outstanding employment data out of the Kiwis yesterday, trading at 1.0480 this morning. Yesterday’s data revealed that the Unemployment Rate fell much more sharply than expected, to 4.0% in Q2. It is now far below the RBNZ’s own Unemployment Rate forecast of 4.7% and is likely close to levels judged as consistent with full employment. At the same time, there was evidence of a pick-up in wage growth. Headline wages increased by 0.7% in Q2 compared to 0.4% in Q1. Many are of the belief that there are no remaining obstacles to the RBNZ raising interest rates at their meeting on the 18th August. As one would expect, the NZD is currently performing strongly and the RBNZ's next meeting is shaping up as one of the most exciting for a while.