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US President Joe Biden's plan to support the economy in the amount of $ 1.9 trillion was approved by the House of Representatives of the US Congress last Saturday. This news, as well as information that Johnson & Johnson's Covid-19 vaccine was approved over the weekend in the United States, which is now the third officially registered in the United States, are driving US stock index futures higher on Monday after falling last week.
Optimism about a new stimulus package and a new vaccine that could more quickly bring the victory over the coronavirus closer, supports the propensity of investors to buy risky assets, putting pressure on the dollar.
According to Bloomberg Economics, the agency's economists believe that US GDP will exceed pre-coronavirus levels by mid-2021. This will be facilitated by both successes in vaccinations and a quick recovery of business activity, and a package of measures to stimulate the economy.
Meanwhile, the dollar also rallies in the first half of today's trading day, receiving support from the growing yields on US government bonds, which also constrains growth in the stock market. In February, the yield on 10-year US Treasuries increased by 0.369 percentage points. This is the highest monthly gain since November 2016. And Wednesday's level of 1.610% became the highest in the last year.
US government bonds are one of the most reliable assets that generate investment income. And the rise in their profitability makes investors think about their preference over risky stocks, which puts pressure on the stock market.
Huge government spending and stimulus from the government and the Fed are turning into potential sources of inflation and triggering sell-offs in bond markets. Now that bond yields have started to climb, stocks seem to be overvalued.
At the same time, forecasts of an impending sharp increase in inflation provoke fears that the US Federal Reserve will raise interest rates faster than it is now declaring and than investors expect. This will increase the cost of attracting loans, having a negative impact on economic growth, but will also increase the attractiveness of the dollar.
The DXY dollar index is growing today for the 5th day in a row, exceeding the highs of 3 weeks ago. As of this writing, DXY futures are traded near 91.08, 33 pips above today's opening price.
Meanwhile, mainly strengthening in the foreign exchange market, the US dollar is falling against the Australian dollar. At the beginning of today's European session, the AUD / USD pair is traded near the 0.7740 mark, still remaining in the bull market zone (see Technical analysis and trading recommendations). AUD / USD briefly exceeded 0.8000 last week.
The RBA will hold its next meeting on Tuesday, and its current monetary policy will likely remain unchanged as well, despite the strengthening of the Australian currency and given the rise in prices for liquefied gas, iron ore, coal - Australia's main export commodities. The RBA's decision on the interest rate will be published at 03:30 (GMT). The current situation creates preconditions for further growth of the AUD / USD pair.
Today, market participants will be looking at US macro data, slated for release at 14:45 and 15:00 (GMT), including the PMI Market for Manufacturing, a similar index from ISM and the ISM Manufacturing New Orders Index for February.
A slight improvement in the indicators is expected, taking into account the fact that they are above the value of 50, which indicates an acceleration of activity. These are positive factors for the US dollar.
