Market Briefing: Hold the line
Have a look at the latest edition of our Event Radar & Views In A Nutshell pack.
Holding on. Quiet end to last week. US equities at record levels. US yields & USD tick up. AUD eased back further. AUD's first weekly fall in a month.
Event Radar. Global PMIs due (Tues). US PCE deflator also out (Fri). US Fed Chair Powell speaks (Weds AEST). AU CPI indicator scheduled (Weds).
Global Trends
It was a fairly quiet end to the week after the burst of US Fed inspired volatility the prior few sessions. Data wise there were no major releases in the US or Europe, while in Asia, as expected, the Bank of Japan held interest rates steady. The slight surprise came from the fact two of the nine member BoJ committee voted in favour of another 25bp rate hike. The dissents increased the odds of a move at the next meeting with the market now factoring in a ~50% chance the BoJ moves again in late-October.
Across markets the S&P500 (+0.5%) and NASDAQ (+0.7%) touched fresh record highs with the S&P500 recording its 6th increase in the past 7 weeks. Bond yields ticked up again with US rates rising ~1-2bps across the curve. The benchmark US 10yr yield (now ~4.13%) has rebounded a bit since last week’s US Fed meeting but it remains well below its 1-year average. In FX, there was a little USD volatility which stemmed from the BoJ-driven round trip in the JPY. USD/JPY (now ~147.90) is on par with where it was tracking this time on Friday, however a softer EUR (now ~$1.1748) and GBP weakness (now ~$1.3472) saw the USD index edge up. The USD recovery in a ‘buy the rumor, sell the fact’ type reaction around the US Fed meant the USD index was, on net, unchanged over the week. NZD (now ~$0.5861) remains on the backfoot having shed ~2.5% from last week’s high point after the very weak NZ GDP data opened the door to more aggressive rate cuts by the RBNZ. And the AUD (now ~$0.6595) continued to drift back towards its ~2-month average.
Looking ahead, the global business PMIs are due this week (Tues), while in the US durable goods orders (a proxy for business investment) (Thurs) and the PCE deflator (the Fed’s preferred inflation gauge) (Fri) are out. Also in the US several Fed members are set to speak over the next few days including Chair Powell (Weds morning AEST). With no major developments since last week’s press conference we expect Chair Powell’s tone and messaging to align with recent comments. On balance, we think the USD could consolidate over the near term with some push-pull signals looking likely from the incoming US data and Fed speakers. That said, over coming months we continue to believe the combination of slower US growth, lower US interest rates, and/or reduced inflows into US assets should see the USD's downtrend re-assert itself.
Global event radar: Global PMIs (Tues), Fed Chair Powell Speaks (Weds), US PCE (Fri), China PMI (30th Sep), RBA (30th Sep), EZ CPI (1st Oct), US Jobs (3rd Oct)
Trans-Tasman Zone
The firmer USD impulses which have been in place since last week’s US Fed meeting where policymakers couldn’t match the markets ‘dovish’ predictions has kept the NZD and AUD on the backfoot (see above). At ~$0.5861 the NZD is down near the bottom of its ~5-month range with the prospect of more aggressive rate cuts by the RBNZ over the next few meetings also a factor at play. Markets are discounting a ~1/3 chance the RBNZ announces a 50bp reduction in early-October with another 25bp cut further out also almost priced in. The AUD (now ~$0.6595) has eased to where it was tracking earlier this month and is ~1.7% below its post-US Fed peak. By contrast, the AUD was a little more mixed on the crosses on Friday with modest gains posted against EUR (+0.1%), GBP (+0.3%) and NZD (+0.1%), while there were falls recorded versus the JPY (-0.3%), CAD (-0.4%), and CNH (-0.2%). More specifically AUD/NZD (now ~1.1252) is up near its cyclical highs with relative fundamentals and interest rate expectations firmly in Australia’s favour.
In Australia this week the monthly CPI indicator is due (Weds). Several of the services components which are updated once per quarter will be released in the August figures. We believe base effects in a few components, particularly around things like electricity subsidies, point to a further re-acceleration in headline inflation (mkt 2.9%pa from 2.8%pa), and upside risks to core inflation. Signs of firmer Australian inflation pressures could reinforce views that the RBA remains on a different path to its peers and further interest rate cuts should be limited. The next RBA rate cut now isn’t fully factored in until December with another move after that almost priced in by next June.
More short-term volatility in the USD and AUD/USD is possible as the incoming Australian and US data influences relative policy expectations. That said, after its recent pull-back we feel the AUD should be somewhat supported around current levels. Indeed, over the medium term (i.e. next ~3-12 months) we remain of the view that the AUD should grind higher. We believe the AUD can be underpinned by a mix of a weaker USD as the US Fed steadily lowers interest rates, signs of improvement in China’s economy as its stimulus push helps counteract tariff headwinds, firmer momentum in Australia’s economy, and ongoing cautious approach from the RBA. As our chart shows, relative yield spreads between Australia and the US are already pointing to a higher AUD.
AUD & NZD event radar: Global PMIs (Tues), Fed Chair Powell Speaks (Weds), AU CPI (Weds), US PCE (Fri), China PMI (30th Sep), RBA (30th Sep), EZ CPI (1st Oct), US Jobs (3rd Oct)
AUD levels to watch (support / resistance): 0.6510, 0.6550 / 0.6630, 0.6680
NZD levels to watch (support / resistance): 0.5790, 0.5830 / 0.5920, 0.5960
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events)
MONDAY (22nd September) AUD RBA Gov. Bullock Speaks (11am) CNY Loan Prime Rate (1yr/5yr) (11am) GBP BoE’s Pill Speaks (10:30pm) USD Chicago Fed Index (Aug) (10:30pm) GBP BoE's Pill Speaks (10:30pm) EUR ECB’s Lane Speaks (11:45pm) USD Fed’s Williams Speaks (11:45pm)
TUESDAY (23rd September) USD Fed’s Musalem Speaks (12am) USD Fed’s Hammack, Barkin & Miran Speak (2am) EUR ECB’s Nagel Speaks (2am) GBP BoE Gov. Bailey Speaks (4am) SGD CPI Inflation (Aug) (3pm) EUR France PMIs (Sep P) (5:15pm) EUR Germany PMIs (Sep P) (5:30pm) EUR PMIs (Sep P) (6pm) EUR ECB’s Muller Speaks (6pm) GBP PMIs (Sep P) (6:30pm) GBP BoE’s Pill Speaks (7pm) USD Fed’s Bowman Speaks (11pm) EUR ECB’s Kocher Speaks (11:40pm) USD PMIs (Sep P) (11:45pm)
WEDNESDAY (24th September) USD Fed’s Bostic Speaks (12am) USD Richmond Fed Index (Sep) (12am) EUR ECB’s Cipollone Speaks (12:25am) USD Fed Chair Powell Speaks (2:35am) CAD BoC Gov. Macklem Speaks (4:30am) JPY PMIs (Sep P) (10:30am) AUD CPI Inflation – Monthly (Aug) (11:30am) EUR Germany IFO (Sep) (6pm)
THURSDAY (25th September) GBP BoE’s Greene Speaks (2:30am) USD Fed’s Daly Speaks (6:10am) AUD Job Vacancies (Q3) (11:30am) USD Fed’s Goolsbee Speaks (10:20pm) USD National Accounts Revisions (10:30pm) USD Goods Balance (Aug) (10:30pm) USD Durable Goods Orders (Aug P) (10:30pm) USD Initial Jobless Claims (10:30pm) USD Fed’s Williams Speaks (11pm)
FRIDAY (26th September) USD Fed’s Bowman Speaks (12am) USD Fed’s Barr Speaks (3am) USD Fed’s Logan Speaks (3:40am) USD Fed’s Daly Speaks (5:30am) NZD Consumer Confidence (Sep) (8am) JPY Tokyo CPI Inflation (Sep) (9:30am) CAD GDP Monthly (July) (10:30pm) USD PCE Deflator (Aug) (10:30pm) USD Fed’s Barkin Speaks (11pm)
SATURDAY (27th September) USD Fed’s Bowman Speaks (3am)
*Note, all times/dates provided are AEST
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