Aussie Rises on Risk-on Sentiment, Dollar Soft Despite Rising Yields

Market overviews

Australian Dollar rises further again with help from risk-on sentiments in the US and Asia. On the other hand, Dollar turns soft despite rising treasury yields. Canadian Dollar is dragged down slightly by oil prices. Other parts of the forex markets are mixed. Euro is still in consolidation against, and cautious comments from ECB officials are unlikely to give it another lift. The big moves in the markets could only come after US consumer inflation data tomorrow.

Technically, AUD/CAD’s rebound from 0.8906 resumed by breaking through 0.9076 temporary top this week. It’s too early to call for a trend reversal. But bullish convergence condition in daily MACD is at least supporting a rebound. Sustained trading above 55 day EMA (now at 0.9095) will pave the way to key resistance level at around 38.2% retracement of 0.9991 to 0.8906 at 0.9320. Similarly, AUD/USD could also be resuming the rebound from 0.6966 towards 0.7313 resistance.

In Asia, at the time of writing, Nikkei is up 1.10%. Hong Kong HSI is up 1.97%. China Shanghai SSE is up 0.40%. Singapore Strait Times is up 0.14%. Japan 10-year JGB yield is up 0.0080 at 0.216. Overnight, DOW rose 1.06%. S&P 500 rose 0.84%. NASDAQ rose 1.28%. 10-year yield rose 0.038 to 1.954.

ECB Villeroy: Policy normalization won’t go beyond neutral orientation

ECB Governing Council member Francois Villeroy de Galhau said market reactions to the central bank’s recent comments were “very high and too high in recent days.”

He told the French National Assembly that ECB has the optionally on the pace on moving between different stages of policy normalization, which starts with end of asset purchases before rate hikes. And, the normalization process would not constitute monetary tightening as it would not go beyond a “neutral orientation”.

“We are exiting a period of exceptionally accommodative monetary policy — that is what it is a question of reducing very gradually and in an adapted way,” Villeroy said.

Fed Daly against overly aggressive rate hikes

San Francisco Fed President Mary Daly told CNN yesterday that “we could have it (inflation) be worse before it gets better but it is definitely going to get better. She didn’t expect inflation to fall back to 2% by the end of the year.

Daly supports starting interest rate in March. However, she added that Fed should do neither too little nor be “overly aggressive”, as Fed alone couldn’t solve the inflation problem largely caused by the pandemic disruptions.

Australia Westpac consumer sentiment dropped to 100.8, elevated pressures on finances

Australia Westpac-Melbourne Institute consumer sentiment dropped -1.3% to 100.8 in February, down from 102.2. The “economy, next 12 months” sub-index increased by 2.4% and the “economy, next 5 years” sub-index was up by 1.5%.

However, the “finances vs a year ago” sub-index slumped by -9.2% (more than reversing the surprise 7.5% lift in January) while the “finances, next 12 months” sub-index fell by -1.5% to be down by -4.3% since December.

Westpac said, “the most likely explanations for these elevated pressures on finances relate to: Omicron-related disruptions to activity and earnings at the start of the year; the rising cost of living; and the prospect of rising interest rates.”

Also, Westpac does not expect the first rate hike by the RBA until August and it will be very interesting to observe how resilient this surprising recovery in confidence will be in the lead up to the first move.”

Looking ahead

Germany trade balance and Italy industrial production will be released in European session. US will release Wholesale inventories final later in the day.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7120; (P) 0.7134; (R1) 0.7160; More…

Intraday bias in AUD/USD remains neutral first. On the upside, break of 0.7167 will resume the rebound from 0.6966 and target 0.7313 resistance. Decisive break there argue that correction form 0.8006 has completed at 0.6966, after hitting 0.6991 key support. Outlook will be turned bullish for 0.7555 resistance next. On the downside, below 0.7050 minor support will bring retest of 0.6966 low.

In the bigger picture, focus remains on 0.6991 key structural support. Sustained break there will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461. Meanwhile, strong rebound from 0.6991 will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 AUD Westpac Consumer Confidence Feb -1.30% -2%
23:50 JPY Money Supply M2+CD Y/Y Jan 3.60% 3.50% 3.70%
07:00 EUR Germany Trade Balance (EUR) Dec 11.3B 10.9B
09:00 EUR Italy Industrial Output M/M Dec 1.70% 1.90%
15:00 USD Wholesale Inventories Dec F 2.00% 2.10%
15:30 USD Crude Oil Inventories 1.5M -1.0M