RBA in focus as Australian yields surge
Monday 1 November, 2021
Daily Currency Update
AUD - Australian Dollar
Friday’s session was a big one. A combination of month-end rebalancing, record highs for the S&P500 and the highest quarterly wage growth number in nearly 40 years out of the USA saw the US dollar index close up 0.8% on the day, with the Australian dollar falling about 50 points from 0.7550 to 0.7500. Similarly, the NZD fell from 0.7190 to 0.7137 throughout trade which saw the AUDNZD cross-trade sideways, oscillating around the 1.05 handle.
In what is shaping up as a big week for the Australian dollar, today’s PMI’s out of China will be closely watched with market participants keen to gauge how the domestic manufacturing sector is navigating supply chain stresses and power outages. We will also get some second-tier domestic data out in the form of CoreLogic house price data and AIG performance of manufacturing index for September; however, the focus will be on Tuesday's RBA meeting. Last week saw Australian bond yields rise sharply as the central bank opted not to enforce its yield curve control policy on Friday. This saw the Apr 2024 bond trade well outside its 0.1% target at around the 0.78% level. The market has interpreted this as confirmation that the RBA’s will drop these targets at tomorrow's meeting and adjust its forward guidance.
Having failed to sustain upward momentum at 0.7550, the AUDUSD’s retreat to 0.7500 could be evidence that the recent uptrend is waning and consolidation around this handle could be in store.
Key MoversFriday’s main market mover was the USD index which as we alluded to above, rose 0.8% throughout the day. Although the EUR did initially rise following the ECB meeting, it fell over 1% to below 1.16 and is trading around its year to date low. Interestingly, equities have been largely insulated from the volatility we are seeing in yields, underpinned by positive risk sentiment which has also benefited the AUD and NZD over the past month
Taking a quick look at commodity price action, oil was flat around $64 a barrel while natural gas fell 5.9%. Copper also fell, along with a 0.9% fall in gold and a 4.7% fall in iron ore which is still trading at north of $108.
- AUD/USD: 0.7480 - 0.7550 ▼
- AUD/EUR: 0.6430 - 0.6550 ▲
- GBP/AUD: 1.8100 - 1.8300 ▼
- AUD/NZD: 1.0450 - 1.0600 ▼
- AUD/CAD: 0.9250 - 0.9330 ▲