Currency View by OFX

Last week’s news

  • The drop in US government bond prices in the opening weeks of 2021 poses a large threat to Wall Street’s record run according to analysts. High prices and vanishingly slim yields on treasuries have provided a key support for the equities market since the shock of the pandemic outbreak last year. However, because of a change in expectations for rising inflation, partly due to the US’ $1.9tn stimulus package, yields have swept higher with the 10-year benchmark yield rallying 0.4% since the beginning of the year. Sharp inflation means higher interest rates, which would be harmful for stocks.
  • European Central Bank policymakers committed to keep ‘a steady hand’ on stimulus measures, according to last month’s meeting minutes when they promised to disregard any short-term jumps in inflation or nominal interest rates. The minutes revealed that the ECB hopes to avoid any significant policy changes for most of this year. Inflation in the eurozone shot up at the fastest rate for more than a decade in January. However, the ECB governing council responded by saying ‘a temporary boost to inflation should not be mistaken for a sustained increase, which was still likely to emerge only slowly’. The ECB currently has a strong bond-buying program of €1.85tn that is due to last until March 2022.
  • The UK’s quick vaccine rollout and coverage alongside a brighter outlook for the economy has boosted the consumer confidence index to the highest level in almost a year. The index, which measures how people view the state of their personal finances and wider economic prospects, rose 5 points to an 11-month-high of minus 23 in February according to data published last Friday.
  • On the back of positive risk sentiment due to vaccine related developments, better than expected economic data around the globe and surging commodity prices, the AUD managed to break above its year to day top of 0.7820, ending the week at a 3-year-high just below the 0.79 mark. Copper rose more than 7% in the week, and although the big story came from the pickup in US interest rates; also a reflection of higher growth expectations, the same phenomena happened across the world, which helps explain why the USD was not bid even as US rates picked up.

Looking ahead

  • Big tech companies have come under scrutiny over the last few days last week as Facebook became the latest tech giant to try and muscle its way over a country’s government as it decided to block the sharing of news in Australia on its platform and prevent the public from accessing critical information on government health and emergency services sites last Thursday, all over a dispute around publishing. Scott Morrison, Australia’s Prime Minister added ‘these actions will only confirm the concerns that an increasing number of countries are expressing about the behaviour of big tech companies who think they are bigger than governments and that the rules should not apply to them’. The ban was imposed hours after Google made a global deal with News Corp around licensing and publishing which has been long sought after by the international community, and it seemed that Facebook’s actions were a statement to say that they were not going to bow to peer pressure and sacrifice their business model or profits by making a similar deal.
  • Copper surged above 9,000 for the first time in more than 10 years, on concerns about a global deficit of the metal and growth expectations. The AUD in the meantime, reached a 3-year-high during Asian trading on Monday, spiking temporarily above 0.79 to a year to date high of 0.7905. The reflation trade is on, keep an eye on Powell, he will deliver its semi-annual speech on Tuesday while other FED speakers are also due. They will probably stick with their rhetoric of low rates for long and no tapering discussion, but it’s going to be hard to avoid the inflation questions.

Key market events this week

  • Tuesday
    • GBP Employment Change (Nov)
    • EUR Core Inflation Rate YoY (Jan)
    • USD CB Consumer Confidence (Feb)
  • Wednesday
    • AUD Wage price index
    • RBNZ Interest Rate Decision & Press Conference
  • Thursday
    • USD Durable Goods Orders MoM (Jan)
    • USD GDP Growth Rate QoQ (Q4)
  • Friday
    • CHF GDP Growth Rate YoY (Q4)

  
 

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