Market Briefing: AUD under the pump
Market swings. Rotation out of tech stocks supports the broader S&P500. US bond yields fall. USD softer. NZD edges up, but AUD weakens.
AU jobs. Employment fell sharply due to part-time jobs. Unemployment at 5yr highs. Odds of another RBA hike reduced. But high inflation still a problem.
Global Trends
A few push-pull forces have washed through markets over recent days and generated bursts of volatility. Following a weak Asian session for risk assets yesterday (at one point South Korea’s KOSPI triggered circuit breakers after plunging ~8%), which itself somewhat stemmed from the rise in bond yields generated by a stronger than expected US CPI inflation report the night before, there were more gyrations overnight. However, the topline moves don’t tell the whole story given the S&P500 recovered (+0.3%). But a closer look under the surface finds that there was a rotation out of technology and energy stocks into other areas such as health care and materials. The S&P500 equal-weighted index, which accounts for the heavy weighting of tech stocks in the main index, rose ~1%.
Concerns about the durability of the AI investment cycle, which has propelled the US equity market higher and supported global growth, are front of mind for investors. The jitters saw US bond yields fall back with the 10yr rate shedding ~13bps (now ~5.06%), its largest one-day drop since August 2025. This is despite US producer prices rising at the fastest pace in more than 4 years because of energy costs and US retail sales beating analysts forecasts. Odds of a late-October US Fed rate hike continue to hover near ~30% with a move by the December meeting fully factored in and ~3 increases baked in by next July. In FX, the pullback in US bond yields exerted a little downward pressure on the USD with EUR (the major alternative) rising (now ~$1.1215), and USD/JPY (the second most traded currency) dipping a fraction (now ~158). The NZD strengthened (now ~$0.5615), while the AUD underperformed (now ~$0.6919) after the latest Australian labour force data showed cracks in the jobs market are widening. This created doubts the RBA will lift interest rates further.
Today, attention will be on a fireside chat by US Fed Chair Warsh (2:30pm AEDT). Chair Warsh isn’t a fan of providing forward guidance; hence he may disappoint those thinking he might give hints about what could happen at upcoming Fed meetings. That said, given underlying inflation pressures across the US/global economy he may reiterate that conditions need to be tightened over the medium-term and/or the Fed is committed to achieving its inflation target. This suggests there is scope for more USD volatility heading into the weekend.
Global event radar: Fed Chair Warsh (Today), China GDP (19th Oct), US Fed (29th Oct), ECB (30th Oct), China PMI (31st Oct), RBA (3 Nov)
Trans-Tasman Zone
Wobbles in risk assets over the past few days, coupled with a weaker than predicted Australian jobs report have weighed on the AUD. At ~$0.6919 the AUD is near the lower end of its multi-month range. The paring back of RBA rate hike expectations has also exerted downward pressure on the AUD cross-rates. Over the past 24hrs the AUD has weakened by ~0.9-1.1% against the JPY, CNH, CAD, and NZD, and there were larger falls recorded versus EUR (-1.3%) and GBP (-1.4%). In contrast to the dip in the AUD the NZD has perked up (now ~$0.5615). When speaking yesterday the RBNZ’s Chief Economist Conway noted the policy decision in late-October is “wide open”, there are upside risks to Q4 NZ CPI, and the weakness in the NZD is “not good” for inflation.
As mentioned before, we believe the NZD’s recent weakness looks overdone with it tracking ~3-4 cents below our ‘fair value’ estimate. Too much weight has arguably been given to NZ’s status as ‘net energy importer’ and shift in the polling for the upcoming NZ General Election. We believe macro supports such as sturdy/improving NZ growth momentum, elevated agricultural prices, and outlook for a stream of further RBNZ rate hikes could see NZD/USD grind back up (and AUD/NZD lose altitude) over the medium-term.
In terms of the Australian jobs data, the monthly labour force lottery generated another surprise, this time a negative one. Total employment fell in September (-39,300), but this has been zig-zagging around the past few months, with a sharp drop in part-time work (-73,700) the catalyst (full-time employment recorded a solid gain (+34,400)). As a result, the unemployment rate held steady at an upwardly revised 4.7% (a high since Oct 2021). The report had both noise and signal. Broadly speaking, there is more slack in the jobs market as interest rate hikes begin to bite. However, the labour market still isn’t ‘loose’ and at the point where excess capacity can dampen domestic inflation by a substantial amount. In our opinion, the door to more tightening by the RBA is still open given the bigger picture forces at play (i.e. the elevated level of demand across the economy, Australia’s lackluster productivity, and sticky inflation).
The quarterly Australian CPI report is due later this month (28 October). Conformation inflation remains uncomfortably high and well north of the RBA’s target could see markets quickly factor in a higher chance of more tightening over coming months. Markets are now only assigning a ~18% chance of a RBA hike on 3 November, less than a 40% probability it occurs at the 8 December meeting, and only ~20bps of tightening by next May. Given already ‘bearish’/’net short’ AUD positioning, we feel that without another burst of risk aversion, further large/sustained falls in the AUD may be hard to come by.
AUD & NZD event radar: Fed Chair Warsh (Today), China GDP (19th Oct), NZ CPI (22nd Oct), AU CPI (28th Oct), US Fed (29th Oct), ECB (30th Oct), China PMI (31st Oct), RBA (3 Nov)
AUD levels to watch (support / resistance): 0.6830, 0.6860 / 0.6990, 0.7040
NZD levels to watch (support / resistance): 0.5540, 0.5580 / 0.5640, 0.5700
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
FRIDAY (16th October)
GBP BoE Governor Bailey Speaks (1pm)
USD Fed Chair Warsh Speaks (2:30pm)
CAD BoC Governor Macklem Speaks (3:15pm)
CAD BoC’s Alexopoulos Speaks (11pm)
USD Import/Export Prices (Sep) (11:30pm)
SATURDAY (17th October)
USD Industrial Production (Sep) (12:15am)
*Note, all times/dates provided are AEST
About the author
