AUD, CAD, Stocks Slump; VIX Index Rises on Renewed Virus Fears

Michael Moran, Senior Market Strategist & Trading Mentor at ACY Securities

14.12.2021 02:00 pm

#stocks

Summary: Renewed fears from the Omicron variant of the Covid Virus lifted Treasuries as investors and traders switched back to risk-off mode. Resource currencies, equities and yields slumped while treasuries rallied. Resource FX leader the Australian Dollar slid 0.35% to 0.7137 (0.7170). The Dollar Index, which measures the value of the Greenback against a basket of 6 major currencies, climbed 0.25% to 96.30 (96.05 yesterday). Canada’s Loonie finished as the worst performing major against the US Dollar, (USD/CAD at 1.2797 vs 1.2727). Earlier this morning, Bank of Canada Governor Tiff Macklem said that the Bank of Canada was focussed on bringing inflation down to target without choking off the country’s economic recovery. The Euro (EUR/USD) dipped to 1.1291 from 1.1317 yesterday. Sterling (GBP/USD) slid 0.33% to 1.3220 (1.3270). Against the Japanese Yen, the Greenback (USD/JPY) edged up to 113.52 (113.37). The US Dollar was mixed against the Asian and Emerging Market currencies. The USD/CNH (Dollar-Offshore Chinese Yuan) settled at 6.3730 (6.3765) while USD/SGD (US Dollar-Singapore Dollar) rallied to 1.3678 from 1.3638 yesterday. Uncertainty surrounded Omicron with ongoing concerns that global growth could be materially altered by the new virus variant. Wall Street stocks slumped. The DOW finished 0.62% lower to 35,743 (35,977) while the S&P 500 lost 0.57% to 4,686 (4,712). The VIX (Fear) Index soared 8.67% to 20.31 (18.69 yesterday). Treasury prices soared and yields tumbled. The benchmark US 10-year treasury bond yield closed at 1.42% from 1.48% yesterday. Germany’s 10-year Bund rate settled 4 basis points lower to -0.39% (-0.35% yesterday).
Data released yesterday saw New Zealand’s Visitor Arrivals jump 59.6% (m/m) from a previous -13.7%. Japan’s Core Machinery Orders (m/m) rose to 3.8%, beating forecasts at 2.1%. However, Japan’s Annual Core Machinery Orders fell to 2.9%, lower than median estimates at 4.0%. Japan’s Tankan Large Manufacturing Index was at 18, lower than estimates of 19. Non-Manufacturing Tankan rose to 9 from a previous 2 and beating median estimates at 6. Germany’s November Wholesale Prices (m/m) matched forecasts at 1.3%.

AUD/USD – slip-sliding away, the Aussie Dollar reversed its one-day rally to finish 0.35% lower to 0.7137 (0.7170 open yesterday). The switch to risk-off from ongoing uncertainty on the Omicron variant weighed on the AUD/USD pair. Overnight low traded was at 0.7110.
USD/CAD – Despite a rise in global Oil prices, the Greenback soared 0.69% against the Canadian Loonie, which was the worst performing major FX. USD/CAD finished in New York at 1.2796 (1.2727 yesterday). Traders interpreted this as lower CAD rates for longer which weighed on the Loonie.
EUR/USD – The Euro dipped back under the 1.1300 support level to 1.1290 in late New York trade. Yesterday the EUR/USD pair opened at 1.1317. Broad-based US Dollar strength and a general risk-off stance did not favour the Euro. Overnight low traded was at 1.1260.
GBP/USD – Sterling slid to 1.3220 from yesterday’s open at 1.3270. A rate hike from the Bank of England which has its policy meeting later this week (Thursday, 16 December at 11 pm Sydney) has been scaled back due after the UK recorded its first death from the Omicron variant. Overnight low for Sterling was at 1.3209.

On the Lookout: Today’s economic calendar picks up as we head into the last trading week before Christmas. New Zealand kicks off with its November Food Price Index (m/m f/c -0.2% from -0.9%. y/y f/c 4% from previous 3.7% - ACY Finlogix). Australia follows with its HIA New Home Sales for November (m/m no f/c, previous was 11.1%), National Australia Bank November Business Confidence Index (no f/c, previous was 21). Japan releases its October Capacity Utilization (m/m f/c 0.7% from -7.3% - FX Street) Japanese October Industrial Production (m/m f/c 1.1% from 1.1%, y/y f/c -4.7% from -4.7% - FX Street). China releases its November Foreign Direct Investment (y/y no f/c, previous was 17.8%). Europe starts with the UK October Unemployment Rate (f/c 4.2% from 4.3% - ACY Finlogix), UK November Claimant Count Change (f/c -31,500 from previous -14,900). The Claimant Count Change is the number of people in the UK claiming unemployment related benefits.
Switzerland follows with its November PPI (m/m f/c 0.2% from 0.6%, y/y f/c 4.9% from 5.1% - FX Street). The Eurozone releases its October Industrial Production report (m/m f/c 1.2% from -0.2%, y/y f/c 3.4% from 5.2% - ACY Finlogix). The US rounds up today’s data releases with its November PPI (m/m f/c 0.6% from 0.6%, y/y f/c 9.2% from 8.6% - ACY Finlogix).
Trading Perspective: The major focus of traders is on the key central bank meetings this week from the US Federal Reserve, the Bank of Japan, the Bank of England, the European Central Bank, and the Swiss National Bank. The other focus of market participants will be on developments of the new Covid strain Omicron, whether it can quash risk sentiment. The rise in risk aversion favoured the US Dollar against its rivals while the VIX Index rose. Markets will remain on edge as they consolidate into this last trading week ahead of Christmas.

AUD/USD – slip sliding away, the Aussie Battler eased against the Greenback to 0.7137 (0.7170 yesterday). Overnight the AUD/USD pair traded to a low at 0.7110, which is where today’s immediate support lies. A break of 0.7110 sees 0.7080 followed by the next support level at 0.7050. Immediate resistance can be found at 0.7175 and 0.7205. Look for a likely drift lower in the Aussie in a choppy range today between 0.7070-0.7175.
EUR/USD – The shared currency dipped to 1.1291 from yesterday’s open at 1.1317. Overnight low traded was at 1.1260. For today, immediate support for the Euro lies at 1.1260 followed by 1.1230. On the topside, immediate resistance can be found at 1.1310 and 1.1330. Overnight high traded was at 1.1319. Look for consolidation in a likely range today between 1.1250-1.1330. Prefer to sell rallies.
GBP/USD – Sterling finished 0.33% lower against the US Dollar to 1.3220 (1.3270). Just last week, traders were expecting the Bank of England to hike rates at this week’s policy meeting. Overnight the UK reported the first death related to the Omicron variant. Which changed perceptions on the BOE’s rate decision on Thursday. Immediate support for the British currency lies at 1.3205 (overnight low 1.3209). The next support level is found at 1.3180 and 1.3150. Immediate resistance lies at 1.3240 and 1.3270. Expect a choppy trading day today on the Pound. Likely range for Sterling, 1.3180-1.3280. Trade the range shag.
USD/CAD – the US Dollar soared against the Canadian Loonie on the market’s risk-off stance to finish 0.69% higher at 1.2797 (1.2727 yesterday). Overnight high traded for the USD/CAD pair was at 1.2820, which is where immediate resistance for today lies. The next resistance level is found at 1.2850 and 1.2880. On the downside, immediate support lies at 1.2770 and 1.2740. Look for choppy trade too in this currency pair, with a likely range today of 1.2730-1.2830. Just trade the range shag, there’s mucho dinero to be made trading the range.