US weekly jobless claims eased back from last week’s high levels. Initial claims came in at 900k (vs. est. 935k, prior revised to 926k from 965k), with continuing claims at 5.054mn (est. 5.3m, prior revised to 5.18m from 5.27m). Housing starts rose 5.8% (est. 0.8%, prior revised up to 3.1% from 1.2%), and permits rose +4.5% (est. -1.7%m/m). The Philadelphia Fed business survey posted a surprise jump to 26.5 (est. 11.8) from 9.1 in Dec. to a new post-pandemic peak, reflecting optimism over the election and late 2020 stimulus deal.
The ECB left its policy settings unchanged, having expanded and extended its QE and forward guidance along with weak economic projections in December. Lagarde pointed to the likelihood of a double dip recession and that accommodation would remain in place, and repeated their monitoring of EUR appreciation. On a more positive note, she also said that the PEPP facility doesn’t need to be used in full, and that while virus restrictions were tightened since the last meeting, there were also major positive developments that should support the medium term recovery, including the Brexit deal. ECB staffers will enhance their measures of financial conditions in time for the March ECB policy meeting in order to better assess the impact of stimulus to date.
Wall Steet remains bullish the Australian dollar. Citi:
AUD is seen as one of the outperformers in Asia with spot +0.35% at 0.7775 at the time of writing, aided by a softer USD and solid jobs data.
–The number employed increased by 50.0k, following an increase of 90.0k in November, meeting the median consensus (50.0k).Full-time employment that increased by 35.7k drove the job gain, while part-time employment increased by 14.3k.
–Today’s results indicate a fairly solid recovery in the Australian job market.
Credit Suisse:
The likelihood of a more direct resumption of the core uptrend in AUDUSD is increasing AUDUSD saw a strong session yesterday, with the currency pair holding above the crucial 21-day exponential average, currently at.7691, increasing the risk of a bullish continuation pattern,with the risk of a topping structure fading further. Resistance is seen initially at .7777, ahead of a renewed test of the January high at.7799/7805. Only a sustained break above here would be sufficient to completely remove the topping risk and instead suggest a much more direct resumption of the core bull uptrend,with the next resistance then seen at the recent and April 2018high at .7816/20. Support in contrast moves initially to .7743, then .7721, where we would expect to see fresh buyers at first. Removal of here would see a move back to the aforementioned 21-day exponential average and key price support at.7691/88. However, only a break beneath here would increase the risk of a topping structure again, which would then only be confirmedbelow.7662/43. Above .7799/7805would confirm a more direct resumption of the core bull move. Support is seen at .7721.
JPM:
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RBC:
ING:
USD:A return to normality points to further USD downside this year. The rebound in stock markets on the first day of President Biden in office lifted cyclical G10 currencies and weighed on the dollar. The message of reconciliation from the new President underscored a clear shift away from the trump administration and should reduce hurdles for cyclical currencies to benefit from the global economic recovery vs the dollar and should, along with a non-reacting Fed to rising inflation, help to facilitate broad-based USD decline.
Goldman:
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More Dollar weakness despite US fiscal easing. The prospect of more US fiscal stimulus and a rise in Treasury yields has stalled the bearish trend in the Dollar and kicked off a more two-way debate in FX markets on the outlook for the greenback. Despite new fiscal tailwinds for the US economy, we do not see reason to changeour structurally-negative Dollar views at this time. First, the Fed’s commitment to keep short-term rates low until inflation picks up means that the Dollar will not benefit from capital inflows in the way the Mundell-Fleming model predicts (and, in any case, fiscal easing has ambiguous effects on FX markets empirically). Second, our research finds that G10 crosses have little sensitivity to long-end rate differentials, after accounting for front-end rate differentials, likely due to greater FX hedging at the long end. Similarly, most Dollar crosses are negatively correlated to bear steepening in the US yield curve. Third, the main feature of our economic outlook (the “first principal component”) is a rapid vaccine-led global recovery. While the US may grow somewhat faster than other regions (the “second principal component”), GDP growth should be quite firm in most economies. We expect tha tbooming global growth will weigh on the Dollar—as the “safe haven” bid ebbs further—more than US growth outperformance supports the Dollar, resulting in ongoing trend depreciation. Our FX team recommends short USD vs CAD and AUDin G10, vs INR, MXN and ZAR in EM.
I still expect DXY to fall to the mid-to-low 80s as reflation takes hold:
All things equal that pins an Australian dollar top somewhere in the low-t0-mid 80s later this year.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
