The AUD was the best performer last week hitting a high of USD 0.78

The AUD was the best performer last week hitting a high of USD 0.7877 and the strongest levels since March 2018.

We can also see copper flying and has blown the $4.00 p/lb level away. 

Industrial metals continue to tell a story of inflation and are offering support for the AUD, as the Aussie remains a vehicle for trading inflation expectations. 

I would argue that NY Fed President John Williams who was interviewed on CNBC, detailing that the recent rise in yields is “not a concern, instead it shows optimism” is important – for those thinking the Fed is going to step in front of the move in yields then Williams’ comments suggest it isn’t on their radar at this stage, which is modestly USD bullish. 

It’s really all about staying in lockstep with the Fed so as not to create a misalignment in policy. They need to believe the economy continues to evolve and terms of trade push higher. They can manage its relative appeal but that’s about it, the Fed are the price maker.

Staying with the Fed and while the market will be sensitive to fiscal negotiations and whether we’re ultimately looking at $1.5t or $1.9t in fresh stimulus, it’s a big week ahead with so many core Fed speakers due on the wires. 

The core focus will be on speeches from Clarida, Powell and Brainard, where the risk is they maintain a dovish outlook, subsequently pushing the DXY into the neckline and keeping the AUD bid.

While AUDUSD looks strong and pullbacks should be confined to 78c, perhaps the better trade is long AUDCHF and short EURAUD. This may be a reflection that the funding currencies are on offer as rates start to move higher and we know that it’s going to take something fairly special for the ECB and SNB to ever move on rates.

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