Aussie dollar keeping a close eye on US movements

Share Markets:

Strong gains on European equities were not followed up on Wall Street.

The Euro Stoxx 50 rose by 1.2%, the Dow was unchanged and the S&P 500 gained 0.2% for the session. The Nasdaq rose by 0.5% to a record high close.

The broader US stockmarket remains close to a record high.

Interest Rates:

US government bond yields rose despite a somewhat soft US retail sales report, which received a mixed reception across markets.

The yield on the 10-year government bond rose by 3 basis points to 2.40%. The yield on the 2-year bond rose by 2 basis points to 1.19%.

After reaching a recent peak in mid-December, US government bond yields have declined, amid concerns the Trump trade may have been overdone.

Foreign Exchange: 

The US dollar index (weighted against a basket of currencies) closed 0.2% lower on the day, its fourth fall of the week, though remained within Thursday's range.

EUR/USD closed in the middle of a 1.0596 to 1.0673 range. The Euro appeared to be unfazed by Italy's ratings downgrade from DBRS which looks set to require larger collateral haircuts for Italian banks on loans from the ECB.

USD/JPY followed US bond yields from around 114.20 to 115.45 then back to currently trade around 114.16. Concerns about a 'hard Brexit' weighed on Sterling. GBP/USD fell sharply to below 1.20, its lowest since October's flash crash.

AUD/USD followed the broad USD moves, from 0.7505 before the US retail sales data to 0.7449, then recovered to trade around 0.7489 at the time of writing.

NZD/USD tested 0.7140, slid back to 0.7071 then rallied sharply to 0.7131. AUD/NZD lacked direction, mostly chopping around 1.0510-1.0540.

After peaking in late December, the US dollar index has weakened, but still remains above its level earlier in December. The retreat of the US dollar from recent peaks reflects concerns the market may have gotten ahead of itself regarding the extent Trump's economic policies will impact economic growth.

Commodities:

The copper price reached a five-week high on hopes of solid demand from China.

The oil price fell by US$0.60 to US$52.40 per barrel, amid concerns OPEC and other producers may not deliver on their promised production cuts. Hopes of a cut in production have sustained higher oil prices in recent weeks. 

Australia:

There was no local economic data released on Friday.

China: 

The trade surplus narrowed to US$40.82bn in December, from a surplus of US$44.23bn in November.

Exports fell 6.1% in the year to December, down from a decline of 1.6% in the year to November. Imports lifted by 3.1%, down from an increase of US$4.7% in the year to November.

US president-elect Trump told the WSJ that he probably would not name China a currency manipulator on day one of his term but did say US companies could not compete with China because "our currency is strong."

Trump also said the One China policy was negotiable, which was followed on Saturday by a statement from Beijing that the policy was not negotiable.

United States:

Retail sales disappointed overall, rising by 0.6% in December. Taken together with an upwardly revised increase of 0.2% in November (previously reported as a 0.1% rise), the headline number for retail sales was broadly in line with consensus expectations.

Sales excluding autos and gasoline were unchanged in December, disappointing consensus expectations for a 0.4% increase.

Business inventories rebounded by 0.7% in November, which was around consensus expectations.

Producer prices rose by 0.3% in December, which was in line with consensus expectations. For the year to December, producer prices lifted by 1.6%, up from 1.3% in the year to November.

Consumer sentiment remained robust, easing to a reading of 98.1 in January, according to the University of

Michigan measure. This was down slightly from a 12-year high of 98.2 in December. The current conditions component strengthened, while expectations softened slightly.


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