Overnight Headlines

*USD mostly weaker, printing a “doji” candle on Monday

*US equities were closed but European markets were all higher

*OPEC+ tensions with no deal push oil prices higher

*RBA opens the door to 2023 tightening

USD has started today on the back foot after closing very marginally lower yesterday in quiet trade. DXY is approaching 92 with EUR/USD nearing 1.19 and GBP/USD closing in on 1.39 with support from virus reopening optimism. The kiwi is the strongest major on the day after two local banks brought forward their rate hike expectations to November this year with markets now pricing a 70% chance of a 2021 hike, after a strong quarterly business outlook survey.

US equities were closed for the holiday but global markets were buoyant in thin volumes with value stocks gaining the upper hand in the form of banks and materials. Sentiment is more mixed this morning with Dow futures in the green but Nasdaq futures pointing to a lower open so far.

Market Thoughts – OPEC+ and oil

The rift between the UAE and Saudi Arabia shows no signs of healing as the tensions within OPEC+ with no deal on boosting oil production continuing to drive prices higher. The UAE believes the supply target of 400k barrels per day each month from August to December is too low and underestimates its production capacity. High level bilateral talks failed to break the impasse and the meeting was called off with the blame for rising prices put squarely at the door of the UAE.

A solution is complicated by the fact that it would likely involve reviewing other country targets, which may leave some of the biggest producers – including Russia – with a lower quota. Strains between the UAE and the Saudis are rare and if prolonged, could lead to alot more supply with the deal unravelling and producers left without output restrictions.

Chart of the Day – RBA tapers, AUD bid

The RBA meeting earlier today saw the bank leave its cash rate at a record low and retain the April-2024 bond for its three-year yield target as widely expected. But the RBA announced a third round of QE at a smaller size than the two previous rounds and across a three-month period rather than six months, with Governor Lowe saying the “probabilities have shifted”. With its commitment to keeping its policy rate unchanged until 2024 now watered down, along with the tapering of its bond buys, the bank is potentially paving the way for rate hikes in 2023.

The AUD is bid today with AUD/USD up 0.84% and close to 0.76 and the retracement highs made after the Fed move. The pair made new lows immediately following Friday’s NFP at 0.7444 but prices have bounced strongly since touching the lower Keltner channel again, breaking above the 200-day SMA today. Bullish momentum is picking up and a double bottom pattern could be forming with the upside target, if this is to play out, coming in around 0.7750. We are currently trading at previous lows in February and March which may act as near-term resistance.