Overnight Headlines

*US stocks climbed to record highs, energy and materials led the gains

*USD rose off an eight-week low ahead of tomorrow’s FOMC

*BoJ left main policy measures unchanged, JPY unmoved

USD picked itself off the floor and gained against the swiss Franc and yen in quiet trade as investors consolidated positions ahead of the Fed meeting. Commodity currencies rose on the back of rising metal and agricultural prices.

US equities edged higheramid strong corporate earnings and expectations the Fed will stay accommodative. Roughly 40% of the S&P500’s market cap report from today to Thursday including the FAAMGs – Facebook, Amazon, Apple, Microsoft and Google.

Market Thoughts – Rising commodity prices may feed through…

Agricultural commodities like corn, wheat and soybeans surged to their highest levels since 2013 due to a combination of more buying and weaker supply on the back of cold weather in Brazil and the US. Metals too, rallied as macro data and some physical supply issues pushed copper especially to near-decade highs.

With issues in supply chains and higher input prices growing, the pressure on underlying inflation is building and may well be another factor which pushes central banks into tightening policy sooner, as inflation proves much stickier than presumed. Along with normalisation, this is a theme to key an eye on going forward which may start pushing market interest rates (ie bond yields) up again.

Chart of the Day – Can AUD/USD maintain its bullish move?

The Australian dollar extended Friday’s risk on move into a new week as the whole commodities complex went into overdrive. Iron ore prices have remained supportive after a long rally along with China’s data flow. Tomorrow sees Australia Q1 CPI with forecasts of a rise to 1.4% from 0.9% previously. Any signs of inflation coming through faster than expected may test the RBA’s ultra-dovish stance.

General risk appetite is still constructive which means AUD/USD can push higher and challenge the cycle highs just above 0.80. We’ve been trading sideways pretty much this year between 0.76 and 0.78 with some brief time outside these levels, but yesterday’s push higher may be the momentum needed to break north. The 50-day and 100-day moving average offer good support around 0.77 with an upward bias moving the pair towards 0.7850 initially.