Aussie soars to 2022 highs; Rise in metals, stocks, fall in bond yields
Summary: The war that began with Russia’s invasion of Ukraine continued into its eleventh day over the weekend. Ukraine’s defense has been far more effective than Russia’s leadership expected of anyone else. The latest reports on the civilian death toll in hostilities across Ukraine since the start on February 24 put the figure at 351 civilians. A growing number of Western companies have severed their ties with Russia. Meanwhile, markets ignored an impressive US non-farm payroll in February, which saw a total of +678k jobs created, beating median expectations of +438k. improved to 3.8% from 4.0% in January, beating the forecast of 3.9%. The euro (EUR/USD) fell, breaking the 1.10 support level at 1.0932 at the close of trading in New York against 1.1058 on Friday morning. This allowed the Dollar Index (USD/DXY), a measure of the value of the greenback against a basket of 6 major currencies, where the EUR/USD weighs the most, to rebound 0.74% to 98 .50 (97.80 Friday). The euro was also weaker against other major currencies.
The EUR/CHF pair headed towards parity, falling 1.5% to 1.0025 from 1.0160 on Friday. The overnight low was at 1.0005, just above the 1.00 level, the lowest since January 2015. Swiss Economy Minister Guy Parmelin noted that the EUR /CHF close to 1.00 is a “concern”.
Elsewhere, the Australian dollar (AUD/USD) edged up 0.30% to 0.7375 from 0.7320, new 2022 highs, once again supported by higher metal prices. Gold jumped 1.8% to $1,969.50 ($1,936.50), iron ore and copper saw strong buying, aluminum prices hit a new high. Against the sought-after yen, the greenback fell 0.76% to 114.85 (115.43) as market risk appetite deteriorated. The British Pound (GBP/USD) fell under the weight of risk aversion and an overall stronger greenback at 1.3234 (1.3337). The US Dollar rallied against Asia and the EMFX. USD/SGD climbed to 1.3612 from 1.3575 on Friday. USD/THB (US Dollar-Thai Baht) edged up to 32.67 from 32.60. The greenback finished up 2% against the Russian ruble at 122.00 (110.00 on Friday). Wall Street stocks slid. As of Friday’s close of trading, the DOW stood at 33,580 from 33,752 while the S&P 500 fell 0.25% to 4,324 from 4,358. Global bond yields fell . The 10-year US Treasury bill rate was last at 1.73% from 1.85%, 12 basis points lower. The yield on the 10-year German Bund fell to -0.08% from 0.01% on Friday.
Other economic data released on Friday saw Japan’s unemployment rate rise to 2.8% in February from 2.7% previously, higher than estimates of 2.7%. Australian retail sales for February were in line with expectations, up 1.8%, matching January’s rise. Germany’s trade balance rose to +€9.4bn from an upwardly revised +€8.1bn, beating estimates of +€7.5bn. French industrial production jumped to 1.6% in February, above forecasts at 0.5%. Eurozone retail sales missed forecasts, rising 0.2% vs. 1.5%. The UK construction PMI beat expectations, rising to 59.1 from 57.4 and above 56.3 previously. Building permits in Canada fell -8.8% in February, disappointing median estimates at +1.3%. Average hourly earnings (wages) in the United States in February fell to 0.0% from a previous downward revision of 0.6% (from 0.7%), missing the forecast at 0.5% . The Canadian IVEY PMI for February fell from 50.7 to 60.6 and the forecast to 54.2.
- EUR/USD – The common currency was crushed, breaking the 1.10 support level to settle at 1.0932 in late New York. On Friday, the euro opened in Asia at 1.1058. The overnight low traded for the EUR/USD pair was at 1.0889. Against other major currencies, the euro also fell. Against the Swiss franc, the euro fell to a new low at 1.0005 before stabilizing at 1.0025.
- AUD/USD – The Aussie Battler extended its outperformance, rising 0.30% against the overall stronger greenback. Rising commodity prices, led by precious and base metals, continued to support the AUD/USD pair. Overnight, the Aussie traded at 0.7380, new 2022 highs.
- USD/JPY- market risk aversion favored the safe haven sought by the Japanese yen. The greenback fell 0.76% against the yen, settling at 114.85 at the close of trade in New York. On Friday morning, USD/JPY opened at 115.42. Falling US bond yields also weighed on USD/JPY.
- GBP/USD – The pound has fallen under the weight of the overall stronger greenback, slipping to 1.3234 since Friday’s open at 1.3337. The combination of risk aversion coupled with a strong US payrolls report weighed on the pound. A strong UK construction PMI report could not support the British currency. Overnight, the GBP/USD pair traded as low as 1.3202.
On the lookout: The new week begins with the limelight firmly on the Russian-Ukrainian war. Economic data releases will take a back seat as geopolitical risks increase. Today’s economic calendar is light. Australia kicked off earlier in the day with its February AIG services index rising to 60.0, topping the previous 56.2. ANZ February job announcements in Australia follow (no f/c, previous was -0.3%). China follows with its January trade balance (+USD 99.5 billion against +USD 94.46 billion – ACY Securities). Chinese exports in January (y/yf/c 15% vs. 20.9%), imports (y/yf/c 16.5% vs. 19.5%) – ACY Securities. Switzerland starts European data releases with its unemployment rate for February (f/c 2.5% vs. 2.6% – ACY Finlogix). Germany follows with its January retail sales (m/mf/c 1.8% of -5.5%; y/yf/c 9.8% of 0% – ACY Finlogix). German factory orders for January follow (m/mf/c 1% vs. 2.8%). UK releases Halifax house price index in February (3-month y/y f/c 10.6% vs. 9.7%; m/mf/c 1.1% vs. 0.3%) . China releases its February reserves data (f/c +$3.225 trillion vs. a previous +$3.222 trillion – ACY Finlogix). The US rounds out today’s reports with its January consumer credit performance (f/c $23.8bn vs. $18.9bn previous).
Business perspective: As currency volatility escalates during the war in Ukraine, some currency pairs are threatening sensitive levels. The EUR/CHF cross, which almost always falls in times of excessive risk, risks crossing parity (1.00). Expect the Euro to remain under pressure as a continued decline in risk sentiment will draw funds into the Swiss Franc. Early in Asian trading, the EUR/CHF cross fell as low as 0.9980 (likely some stops executed early in Sydney). Expect the Swiss National Bank to intervene verbally to prevent any further strengthening of the Swiss Franc against the Euro. Although the common currency has stabilized, it remains under pressure, which will continue to support the overall strength of the US dollar. Asian and emerging currencies also weakened against the greenback. While the Aussie dollar has outperformed, managing to trade all the way to 2022 highs, any further gains in the current environment will be difficult.
- EUR/USD – The breakout of the 1.1000 support level on the Euro forced the common currency lower to end at 1.0932 from Friday’s open at 1.1058. The overnight low was at 1.0889. Immediate support for the day is at 1.0900 followed by 1.0870. On the upside, immediate resistance can be found at 1.0960, 1.0990 and 1.1020. Expect the Euro to remain heavy in a likely choppy range today between 1.0885 and 1.1025. Just trade the range, enough in there to make money.
- AUD/USD – The Australian dollar benefited from the sharp rise in commodity prices, particularly iron ore, and other base metals (copper, aluminium). AUD/USD traded to an overnight high of 0.7380 before easing to settle at 0.7375. Immediate resistance stands at 0.7380 followed by 0.7410. On the downside, immediate support can be found at 0.7340, 0.7310 and 0.7280. Despite the rise in commodity prices, it is difficult to see the Aussie Battler maintaining its strength against the greenback given the weakness in Asian and emerging currencies. Looking to sell rallies up to 0.7400-10 today.
- USD/JPY- The dollar slipped against the yen to 114.85 from 115.43 as risk aversion favored the safe haven Japanese currency. US bond yields also fell. The strong US Payrolls report saw the USD/JPY pair trade to an overnight high of 115.55 before falling at the New York close. The overnight low traded for the USD/JPY pair was at 114.52. For today immediate support stands at 114.50 followed by 114.20. Immediate resistance can be found at 115.10, 115.40 and 115.70. Look for further choppy trading in a likely range today between 114.50 and 115.50.
- GBP/USD – the combination of general US dollar strength and risk aversion will weigh on the UK currency. Overnight, the pound slid as low as 1.3202 before stabilizing at 1.3237 in late New York. For today, immediate support lies at 1.3200 and 1.3170. Immediate resistance can be found at 1.3260, 1.3290 and 1.3320. Expect the Pound to trade today in a likely range of 1.3200-1.3320. Just swap the shag range on this one today.