APAC Morning Update - 02/03/21

The NZDUSD opens at 0.7256 and AUDUSD opens at 0.7770

The Kiwi and the Aussie are taking a breath after their big sell off yesterday. As seems to be the theme of last week, it is all down to bonds, and highlighted especially well with Australia’s example. As we know US Bond rates spiked up to 1.6%, before coming off a touch, but what is really interesting is the Feds reaction, or rather lack of it. As yields go up, due to positive recovery hopes, or increased inflation expectations, the Fed- if it is worried- can buy bonds to get the yields back down. This is looser monetary policy, and risks being inflationary. All else being equal, then this should be a negative for the USD.

However, where things get exciting, (honestly), is that the Fed seem comfortable with the rise in yields, and don’t seem to be stepping in or talking them down just yet. Contrast this to Australia, who stepped in and doubled their daily purchase rate, which sent yields down 24 basis points. The ECB out of Europe are also worried, saying the rise is unwarranted and they must act against it.

So where does this potentially leave us? The Fed seem happier running a higher yield than others, which should see demand for the USD increase. Do you want to be paid 0.67% on your Italian debt, or 1.6% on your US debt? How is that even a question?

The RBA is out of Australia at 4:30pm with their cash rate and statement, which until a week ago, probably wasn’t going to be that interesting. However, they will be worried about financial stability due to house price corrections just like the RBNZ- which is why they are so wary of their yield increasing- so will be very keen to come across as dovish. Anything less and the AUD would get a boost.

Global equity markets are bouncing: Dow +2.3%, S&P 500 +2.6%, FTSE +1.6%, DAX +1.6%, CAC +1.6%, Nikkei -1.7%, Shanghai -0.9%.

Gold prices are off 0.7%, currently trading at $1,721 an ounce. WTI Crude Oil prices are down 1.6% trading at $60.7 a barrel

AUDUSD 0.7770 0.8%
AUDEUR 0.6449 1.0%
AUDGBP 0.5581 1.0%
AUDJPY 82.98 1.0%
AUDNZD 1.0694 0.4%
GBPAUD 1.7916 -0.9%

NZDUSD 0.7256 0.3%
NZDEUR 0.6026 0.6%
NZDGBP 0.5215 0.5%
NZDJPY 77.50 0.5%
NZDAUD 0.9346 -0.5%
NZDCAD 0.9196 -0.2%
GBPNZD 1.9170 -0.5%