Commodity currencies were lower against the USD overnight, with the Australian dollar slipping to its weakest level since June. The AUD extended its losses after a disappointing trade surplus report which saw the data falling woefully short of expectations, coming in at 0.1B versus 1.4B expected. The sharp fall off in exports, down 1.8% for the month, indicates that demand from global markets such as China may be tapering, which is hardly supportive for the AUD long term. Read more
This week’s economic update shows choppy trading in markets overnight, with US equity markets easing from previous record highs spurred by the news of the tax legislation passing through the US Senate. Initially this week, the USD and equity markets traded at elevated levels, as the tax-cut legislation news shifted focus away from the continuing Mueller investigation into the Trump administrations Russian connections.
The S&P 500 Index reversed gains of as much as 0.9 % and the Nasdaq index fell as investors reassessed a rally that’s propelled stocks to numerous records this year. An index of the biggest tech shares dropped to a five-week low as investors switched out of the sector, overwhelming an advance by companies poised to benefit from proposed cuts to corporate taxes.
This week is a shortened week in the US, with FX trading expected to be curtailed by the US Thanksgiving holiday on Thursday, with many having Friday off for an extra-long weekend and retailers having “Black Friday” sales. US data releases continue to be supportive, with US markets remaining focused on the progress of tax reform legislation, which although passed in Congress still has to pass through the Senate. Over in the Eurozone, increased political uncertainty in Germany has weighed on sentiment and last night ECB head Draghi, reiterated that Eurozone inflation is still less than desired and that policy rates are likely to remain around current levels well past the end of the QE programme. Read more
Although the US tax overhauls legislation remains struggling for support, continuing to impact sentiment on the USD, there was better news over the weekend on the trade front providing a more positive start to the week. The APEC Summit has seen the tentative agreement by 1 nations for a revamped TPP trade agreement to be known as the CPTPP This “refreshed” agreement minus the US and exclusion of a number of the more controversial clauses appears to be largely similar to the old TPP. Although the new agreement will now have to be passed by the individual 11 separate Governments before it can take effect, the outcome is positive for the Asian/Pacific trading bloc. Geopolitical concerns continue to simmer, with the war of words over North Korea continuing throughout President Trumps Asian visit, the US 3 Carrier fleet conducting exercises in the South China sea and a further statements on both trade and North Korea from President Trump expected on his return to the US on Wednesday. Read more
The Reserve Bank of Australia (RBA) kept rates on hold at 1.5% as expected on Tuesday with RBA Governor Lowe indicating that the central bank will not change its growth or inflation forecasts. The Bank’s central forecast remains for inflation to pick up gradually as the economy strengthens, with employment as well as wage growth expected to improve over the period ahead. Economic data out this week for the Aussie economy remains mixed with retail sales and inflation softer than expected but the labour market continuing to perform well, showing a period of consistent growth over the last 12 months. Read more
The NZD recovery may be continuing but the US Non-farm payroll data released on Friday contained mixed messages. On one hand it was softer than the 310 K+ job gain expected coming in at a 261k gain, however the previous month of September was upwardly revised to a 90K gain instead of the earlier -33K loss. Also of a positive note was a fall in the unemployment rate from 4.2% to 4.1%, a level not seen since 2000. Wage growth was lower dropping from 2.8% to 2.4% pointing to the scenario of the scenario where steady growth continues with not a lot of inflationary pressure. Enough positives for a December Fed rate hike to all but assured. ISM non-manufacturing data for October was also solid, up to 60.1 pointing to a strong start to Q4 activity. On release of the NFP report, the USD rallied against both the JPY and EUR, and US equities markets made new highs. Over the weekend there were some interesting comments from China’s Central bank Governor, warning that China’s financial system is becoming significantly more vulnerable due to high leverage and that risks were accumulating that were “hidden, complex, sudden, contagious and hazardous.” Read more
There has been little respite for the AUD over the last couple of days, having dropped for 5 consecutive days from the 0.7823 high seen against the USD at the start of the week. It is now around 0.7650 after this afternoon’s PPI data came in below expectations at 0.2% against expectations of 0.4%….the AUD sold off around 20 points on this release. The AUD/USD looks poised for further declines having broken through the key 0.7730 support level after softer inflation outlook on Wednesday, with tonight’s US Q3 GDP figure likely to provide the catalyst. Longer term with no inflation pressure to pursue rate hikes focus turns again to RBA monetary policy divergence from that of the US Fed, the Aussie’s carry and yield advantage is diminishing and investors look to be correcting recent upside moves. Read more
Australian August jobs data out yesterday was ahead of expectations showing a leap of 54,200. That’s the largest jump for 2 years and substantially higher than the 15-20,000 increase forecasted. This was the 11th straight month of gains, the longest streak in 23 years. Read more
Australian data this week has been a little mixed but the Australian dollar has now managed to hold over the 0.8000 level against the USD. On Tuesday the RBA keep interest rates on hold at 1.5% as widely expected but the accompanying statement was more hawkish than many expected and overnight price action saw the AUD break above 0.800 to an 0.8026 high. Read more
The eagerly awaited Jackson Hole addresses by central bankers, Yellen and Draghi on Friday night failed to meet market expectations around supplying clues to the timing of tightening moves. Rate hike comments were side lined as they both appeared to work in parallel to deliver a clear message on a different (and perhaps slightly less market-sensitive) topic: financial system regulation. Read more