Commodity Currencies Recover

The greenback paused its rally on Tuesday, falling against its G10 peers as commodity currencies rallied. AUD/USD rose to highs of 0.7813 before dropping back into the close, the rate last changes hands down 2 pips on the session at 0.7818.

• Data earlier in the session from IHS Markit saw services PMI drop to 53.4 from 54.1, this saw the composite reading fall to 53.7 from 54.4. "The Australian services sector remained well inside expansion territory in February, despite softer increases in both activity and new orders. Businesses commented that the easing of broad COVID-19 restrictions had boosted demand and activity, although noted that the brief tightening of restrictions in Victoria state had slightly dampened business conditions," said Usamah Bhatti, Economist at IHS Markit.
• Also released was AiG performance of construction index at 57.4 from 57.6, Ai Group Head of Policy, Peter Burn, said: "The construction sector continued to recover in February building on the strong rebound that first emerged in October last year. House building activity further accelerated, and the apartment sector lifted firmly into positive territory in the month."
• From a technical perspective AUD/USD is trading closer to recent lows and remains vulnerable following last week's sharp sell-off from 0.8007, Feb 25 high. Price action has so far managed to find support at the 50-day EMA that intersects at 0.7696 Tuesday. A clear break of the average would signal scope for a deeper pullback and open the 0.7600 handle and potentially below. Initial resistance is at 0.7883, Friday's high with the bull trigger for a resumption of gains defined at 0.8007.
• Markets look ahead to GDP data due at 0030GMT/1130AEDT. The Q4 figure is expected to show Q/Q growth of 2.5%. CBA are positive on the release: "We estimate all key components of domestic final demand, in particular household consumption, contributed to growth in the quarter. By contrast, net exports will be a small drag on growth subtracting 0.1ppt from Q4 20 GDP. Overall, we estimate Australia's real GDP lifted by 2.6%/qtr in Q4 20. This would lift the annual contraction to 1.7%/yr. Australia's economic recovery in 2020 has been better than initially expected, reflecting its success in containing the COVID‑19 pandemic as well as the swift responses from fiscal and monetary policies. We expect the Australian economy to continue recovering solidly through 2021 especially with the vaccines currently being rolled out."