Market Briefing: AUD still floundering
Cross-currents. US equities outperformed. USD still elevated with global growth/US election concerns keeping NZD & AUD on the backfoot.
AU CPI. Q3 inflation due today. Government measures will mechanically lower headline inflation. RBA more focused on trends in core CPI.
Data flow. US election is next week. Ahead of that US Q3 GDP is due tonight. PCE deflator & non-farm payrolls also released this week.
Mixed signals overnight across markets and regions. Unlike the dip in European equities (EuroStoxx600 -0.6%) the US stockmarket rose. A rally by megacap tech names, which was led by Alphabet after its earnings beat estimates, helped the NASDAQ (+0.8%) hit an all-time high. By contrast, bonds went the other way with European yields rising ~4-6bps and US yields declining (US 10yr -3bps to 4.25%). There were conflicting economic signals out of the US. While consumer confidence increased in October because of optimism about the outlook, JOLTS job openings (a forward-looking gauge of labour demand) undershot predictions. Job openings fell to the lowest level since early-2021 as layoffs ticked up. Moreover, guides for labour market slack and wages also improved (a positive sign for US inflation) with the ‘quit rate’ (a measure of jobs churn) now comfortably below pre-COVID levels.
On net, the various crosscurrents saw the USD index tread water. EUR is hovering just above ~$1.08, USD/JPY nudged up (now ~153.35), and although GBP edged higher (now ~$1.30) ahead of tonight’s UK Budget (11:30pm AEDT), the USD was a bit firmer against the CAD. At ~1.3915 USD/CAD is at the upper end of its 1-year range, with interest rate differentials in the US’ favour. Overnight Bank of Canada Governor Macklem reiterated that more cuts are in the pipeline as policymakers look to support growth and keep inflation close to the 2% target. Elsewhere, NZD drifted lower (now ~$0.5967), as did AUD (now ~$0.6560). Both are tracking down near levels last traded in early-August. Australian Q3 CPI inflation is out today (11:30am AEDT).
The US election is now less than a week away (5 November). Punters view a Trump victory and a Republican sweep of Congress as the most likely outcome (see chart below). However, despite the market moves that have come through over recent weeks we don’t believe a Trump win has been fully discounted. This suggests that if he is victorious more USD strength is probable as markets further re-price the outlook due to his platform of trade tariffs, greater fiscal spending, and moves to curb US immigration. We think this mix could generate a positive US inflation impulse, which in turn keeps US interest rates and the USD higher than would otherwise be the case. Conversely, based on where things now sit a ‘surprise’ win by VP Harris could see the USD slump. For more see Market Musings: US election - FX inflection point.
Prior to the election there are several important US data releases scheduled including Q3 GDP (11:30pm AEDT), the PCE deflator (the Fed’s preferred inflation metric) and employment cost index (a broad wages reading) (Thurs AEDT), and non-farm payrolls (Fri AEDT). We feel that more signs the underlying pulse of the US economy is positive, and is outperforming its peers, can keep the USD elevated.
Global event radar: EZ GDP (Tonight), US GDP (Tonight), BoJ Meeting (Thurs), China PMIs (Thurs), EZ CPI (Thurs), US PCE Deflator (Thurs), US Jobs (Fri), RBA Meeting (5th Nov), US Election (5th Nov), BoE Meeting (7th Nov), US Fed Meeting (8th Nov)
AUD corner
The AUD remains under pressure. The firm USD, and concerns about the outlook for regional/global growth stemming from lackluster momentum in China and former President Trumps platform for large-scale trade tariffs is exerting downward pressure. At ~$0.6560 the AUD is back down near levels last traded in early-August, ~5.5% below its late-September cyclical peak, and slightly under its 1-year average. The AUD has also been on the backfoot on the crosses, albeit to differing degrees. AUD/GBP shed ~0.7% over the past 24hrs, with falls of ~0.2-0.4% recorded against the EUR, JPY, NZD, CAD, and CNH.
Locally, Q3 CPI is released today (11:30am AEDT). There will be diverging signals in the data. The mechanical drag from government electricity rebates, as well as petrol related base effects, should help lower headline inflation back into the RBA’s 2-3% target band for the first time in a few years (mkt 2.9%pa). But this shouldn't generate a RBA policy response. The RBA will be looking more closely at the trimmed mean/core measure as this should only have modest subsidy impacts and provides a better guide to inflation persistence (note: headline inflation will mechanically rebound once government measures end, and policymakers normally look through volatility in the data generated by one-offs). The analyst consensus is looking for trimmed mean to come in at 0.8%qoq/3.5%pa. This is broadly in line with the RBA’s August projections. We think this type of result, coupled with the ongoing resilience in the Australian labour market, points to a modest RBA interest rate cutting cycle kicking off in H1 2025.
Signs domestic core inflation remains sticky could give the beleaguered AUD some short-term support. We would also flag that after its negative run the AUD is approaching ‘oversold’ levels on various technical indicators such as relative strength indices. That said, given the bigger global forces at play we don’t believe any near-term reversal in the AUD will be overly pronounced or sustained. As discussed, there are a few key US data releases scheduled including Q3 GDP (11:30pm AEDT) and non-farm payrolls (Fri AEDT). In our opinion, solid US data may see markets pare back their US Fed easing assumptions, which if realised might see US yields and the USD rise. On top of that the US election is coming closer into view (5 November). Chances former President Trump wins and pushes through an agenda of large-scale tariffs and greater fiscal spending have risen. This mix is also assumed to be USD supportive. For more see Market Musings: US election - FX inflection point.
AUD event radar: AU CPI (Today), EZ GDP (Tonight), US GDP (Tonight), BoJ Meeting (Thurs), China PMIs (Thurs), EZ CPI (Thurs), US PCE Deflator (Thurs), US Jobs (Fri), RBA Meeting (5th Nov), US Election (5th Nov), NZ Jobs (6th Nov), BoE Meeting (7th Nov), US Fed Meeting (8th Nov)
AUD levels to watch (support / resistance): 0.6500, 0.6550 / 0.6610, 0.6650
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
WEDNESDAY (30th October)
AUD CPI Inflation (Q3) (11:30am)
EUR France GDP (Q3) (5:30pm)
EUR Spain CPI Inflation (Oct) (7pm)
EUR Germany GDP (Q3) (8pm)
EUR GDP (Q3 A) (9pm)
GBP UK Budget (11:30pm)
USD GDP (Q3 A) (11:30pm)
THURSDAY (31st October)
EUR Germany CPI Inflation (Oct) (12am)
EUR ECB’s Schnabel Speaks (2am)
EUR ECB's Villeroy Speaks (2:15am)
EUR ECB’s Nagel Speaks (5am)
JPY BoJ Decision (no set time)
NZD Business Confidence (Oct) (11am)
AUD Building Approvals (Sep) (11:30am)
AUD Retail Sales (Sep) (11:30am)
AUD Retail Sales Volumes (Q3) (11:30am)
CNY PMIs (Oct) (12:30pm)
GBP BoE’s Breeden Speaks (12:35pm)
EUR France CPI Inflation (Oct) (6:45pm)
EUR ECB’s Panetta Speaks (8pm)
EUR CPI Inflation (Oct P) (9pm)
CAD GDP – Monthly (Aug) (11:30pm)
USD Employment Cost Index (Q3) (11:30pm)
USD PCE Deflator (Sep) (11:30pm)
USD Initial Jobless Claims (11:30pm)
FRIDAY (1st November)
USD Chicago PMI (Oct) (12:45am)
AUD New Home Lending (Sep) (11:30am)
CNY Caixin PMI – Manufacturing (Oct) (12:45pm)
USD Jobs Report (Oct) (11:30pm)
SATURDAY (2nd November)
USD ISM Manufacturing (Oct) (1am)
*Note, all times/dates provided are AEDT
About the author
