AUTRALIAN DOLLAR FORECAST: NEUTRAL
- Evergrande continues to plague markets and a few points are unresolved
- Commodities have combined implications as power provide constraints proceed
- Long run yields on the march: will 10-year AU-US spreads impression AUD/USD?
Central banks gave their viewers what they wished this week, whereas the Chinese language authorities stays guarded over Evergrande’s debt obligations. Commodity costs have seen increased volatility with sector particular points at play. Larger lengthy finish bond yields are rising, however the focus for AUD/USD would be the differential.
The FOMC delivered on market expectations through the week and the tapering of the Fed’s bond shopping for program will virtually definitely be introduced on the November assembly. The RBA minutes seemingly confirmed that the present financial coverage stance will likely be maintained till February 2022. With each central banks heading in the identical course, foreign money markets turned to larger points.
The Evergrande saga weighs over markets as a number of the bond coupons are being paid and others are but to be. There may be nonetheless a excessive diploma of uncertainty about what’s going to unfold. The market notion is that the Chinese language authorities will take measures to stop contagion however that there will likely be ache for traders.
The diploma of losses from Evergrande could decide costs for risk-sensitive belongings and the AUD/USD will likely be inclined to those shifts in sentiment.
Iron ore costs stabilised after a sell-off on Monday, however they’re nonetheless a good distance from the highs seen earlier within the 12 months. Going ahead, the commodity may see decrease ranges on decreased Chinese language demand. Nonetheless, a value under US$80/tonne begin to turn into unprofitable for marginal producers, which may hamper provide.
Whereas iron ore is a spotlight for the AUD foreign money market, Australian exports of oil, gasoline, coal, and liquefied natural gas (LNG), account for a major contribution to export earnings. These power markets proceed to commerce increased amid quite a few provide constraints that don’t look prone to be resolved quickly.
Within the aftermath of the FOMC assembly, the US yield curve steepened with lengthy finish bonds backing up. Australian authorities 10-year yields adopted swimsuit and the unfold to the US authorities 10-year is inching towards parity. Ought to Australian yields go increased than US yields, this can be supportive for AUD/USD.
Trying forward, Australian retail gross sales information is due on Tuesday and constructing approvals will likely be launched on Thursday. The US will see GDP information concurrently unemployment claims on Thursday.
AUD/USD AGAINST AUSTRALIA-US 10-YEAR YIELD SPREAD
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the feedback part under or @DanMcCathyFX on Twitter