Treasury Yields, US Impeachment, AUD/NZD - Talking Points
- Wall Street traders unfazed by impeachment proceedings in Congress
- Treasury yields move lower after strong auction demand on 30-year bonds
- AUD/NZD rally may continue with bullish technical signals on horizon
US markets ignored impending political implications surrounding a likely second impeachment of President Donald Trump on Wednesday. The S&P 500 rose 0.23% while the Nasdaq Composite gained 0.43%. Small-cap stocks lagged the broader market, with a 0.75% decline in the Russell 2000 index. The Dow Jones Industrial Average traded mostly sideways, losing only 0.10% on the day.
Wall Street started the day with inflation data for December that crossed the wires above analysts’ expectations, but the gains were mainly driven by higher energy prices. Still, higher inflation bets for the future persist as investors look ahead to a pro-stimulus environment under the incoming Biden administration.
Source: DailyFX Economic Calendar
The US House did move to impeach President Trump after the New York closing bell, accusing incitement of insurrection, though markets continued to discount the news. Earlier in the day, Fed Governor Lael Brainard reinforced the Fed’s timeline on sustaining asset purchases until achieving more progress towards the central bank’s dual mandate.
US 10-Year Yield, Nasdaq, Dow Jones – 30-Min Chart
Chart created with TradingView
Thursday’s Asia-Pacific Outlook
Asia Pacific markets may extend gains from Wednesday following weaker yields across long-dated US government bond yields. A strong auction for $24 billion of 30-year Treasuries on Wednesday morning pushed the 30Y yield down nearly 3%. The recent strength seen in the US Dollar eased alongside the drop in yields, but the DXY index began to inch higher following a brief drop below the 90 handle.
Investors will look ahead to economic data out of China early Thursday when trade figures and foreign direct investment for December will cross the wires. According to the DailyFX Economic Calendar, analysts expect China’s balance of trade to come across at US$72.35 billion. The economic print may help guide analysts’ expectations for next week’s highly anticipated Q4 GDP print, with the current forecast calling for 6.1% YoY growth for China’s economy.
China’s net exports are likely to have a spillover effect on closely linked economies such as Australia and New Zealand. Both countries’ currencies outperformed against the Greenback in 2020, but the Aussie-dollar outperformed against the Kiwi. The trend so far this year appears to have AUD/NZD on track to repeat that performance. The Australian Dollar tends to benefit from strong commodity prices bolstering the economy through its export channels, largely thanks to China.
AUD/NZD Technical Outlook:
The rally in AUD/NZD from its December swing low has recently brought the cross to multi-month highs, clearing the November 2020 peak earlier this week. The MACD’s growing divergence signals healthy momentum and the RSI oscillator is nearly eclipsing the 70 level. The aforementioned November high may provide support to the downside.
Above, AUD/NZD will face the 61.8% Fibonacci retracement level from the 2020 August-December move. Moreover, a bullish Simple Moving Average crossover between the 20- and 200-day SMAs may form if bullish action continues. The signal could generate further upside in the near term.
AUD/NZD Daily Chart
Chart created with TradingView
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--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter