Market Briefing: Holding on, but risks remain

• Consolidation. Oil a little lower due to positive rhetoric. US equities tread water. USD firmer. NZD a relative outperformer. AUD drifts a fraction lower.

• Data pulse. Global PMIs out today. AU jobs report due Thursday. RBA Gov. Bullock acknowledges higher unemployment needed to ease inflation.

Global Trends

• With news flow limited, financial market movements were modest overnight. Some positive vibes about the state of play in the Middle East caused oil prices to dip a little with brent crude slipping back to ~US$98.50/brl. President Trump indicated that US officials met with Iran’s delegation at the UN for a few hours. This followed reports Saudi Arabia is preparing to restart its East-West pipeline and resume exports from its Red Sea port later this week. That said, underlying issues from the prolonged conflict (which has disrupted supply for several months) remain very much in place. We would note that while brent oil futures have given back some ground, Dated Brent (which is the physical spot-market price that better reflects immediate demand/supply) remains at high levels, as do real-world prices for various refined products such as diesel, jet fuel etc. This is a headwind for global economic activity as higher fuel costs act as a tax on businesses and consumers.

• Elsewhere, bond yields consolidated at elevated levels with the US 10yr rate hovering near ~4.96% (the upper end of its multi-year range) and the monetary policy expectations driven 2yr rate is at ~4.75%. On the back of underlying inflation impulses and sturdy economic momentum markets are pricing in a ~53% chance of a follow up US Fed rate rise in October. Another Fed rate hike is more than fully factored in by year-end, and ~3 moves are discounted by mid-2027. Tech stocks edged up (NASDAQ +0.5%) while the broader S&P500 tread water with financials and energy subsectors falling. In FX, the USD ticked up with EUR (now ~$1.1448) around the lower end of its 1-month range, and USD/JPY north of ~157. The AUD drifted a fraction lower (now ~$0.7116) while the NZD (now ~$0.5729) nudged up after the RBNZ acknowledged that near-term inflation could be higher than predicted if high oil prices persist.

• Macro wise the latest business PMIs across Europe (5:15-6:30pm AEST) and the US (11:45pm AEST) are released tonight. More signs the US economy is holding up might, in our opinion, reinforce the case that the US Fed has more work to do to tame inflation over coming months. On balance, we believe the outlook for further US Fed policy tightening, elevated oil prices (given the US’ status as a ‘net energy exporter’), and fragile/volatile risk sentiment may keep the USD supported over the short-run.

Global event radar: Global PMIs (Today), RBA (29th Sep), China PMIs (30th Sep), US PCE (30th Sep), JP Tankan (1st Oct), EZ CPI (2nd Oct), US Jobs (2nd Oct)

Trans-Tasman Zone

• The modest uptick in the USD, in otherwise quiet overnight trading, on the back of a modest rise in US bond yields exerted a bit of downward pressure on the AUD. That said, at ~$0.7116 the AUD is close to where it started the week and above its 3-month average with the AUD also consolidating on most of the major cross-rates over the past 24hrs. By contrast, after a weak run, the NZD recovered a little ground. However, at ~$0.5729 the NZD remains near the lower end of its 2-month range and AUD/NZD (now ~1.2421) is up around levels last traded in 2013. Rhetoric from the RBNZ indicating that higher oil prices could mean near-term inflation is above its forecasts generated renewed support for the NZD. We remain of the view that the NZD looks undervalued (and AUD/NZD appears too high) relative to fundamental drivers (and our Fair Value modelling) with the outlook for positive NZ economic momentum, rising NZ interest rates, and elevated agricultural commodity prices supportive factors for the NZD over the medium-term.

• Locally, the rhetoric from RBA officials over recent weeks has generally been ‘hawkish’, and the comments from Governor Bullock yesterday did little to dampen expectations another interest rate hike could be announced next week. According to Governor Bullock the labour market is “a bit tight” and an unemployment rate between 4.5-5.0% “will probably take enough heat out of the labour market” to help “ease pressure on inflation”. More slack in the economy (and a higher unemployment rate) is the price that typically needs to be paid to break the back of inflation. As our chart shows, the RBA’s forecasts looking for unemployment to move up towards ~4.7% by end-2027 coincide with an inflation forecast close to target. The August Australian jobs report is due on Thursday, and it is likely to show conditions remain too tight for comfort. If realised, a positive report might further bolster the case for a RBA hike next Tuesday (this outcome is now ~85% priced in), and generate some knee-jerk support for the AUD.

• That said, we continue to think that medium-term upside potential in the AUD is limited from here. For one, we believe elevated oil prices (given the US is a ‘net energy exporter’) can be USD supportive, as should the prospect of another ~2-3 US Fed rate hikes over the next few months. On the AUD side of the equation, we also feel the outlook for higher RBA interest rates is well factored in (there is ~63bps of tightening discounted by Q2-2027). But the local growth challenges created by rising mortgage costs, elevated fuel prices, and unfolding housing downturn may not (yet) be fully appreciated. Furthermore, as outlined previously, FX is a relative price. While the RBA looks set to raise interest rates further, other central banks could have more work to do more, hence yield differentials may gradually shift against the AUD.

AUD & NZD event radar: Global PMIs (Today), AU Jobs (Thurs), RBA (29th Sep), AU CPI (30th Sep), China PMIs (30th Sep), US PCE (30th Sep), JP Tankan (1st Oct), EZ CPI (2nd Oct), US Jobs (2nd Oct)

AUD levels to watch (support / resistance): 0.7020, 0.7090 / 0.7150, 0.7190

NZD levels to watch (support / resistance): 0.5640, 0.5690 / 0.5780, 0.5840

Market Moves

Peter Dragicevich

Currency Strategist - APAC

peter.dragicevich@corpay.com

Upcoming Events

WEDNESDAY (23rd September)

SGD CPI Inflation (Aug) (3pm)

EUR ECB’s Vujcic Speaks (5pm)

EUR ECB's Schnabel Speaks (5:15pm)

EUR France PMIs (Sep P) (5:15pm)

EUR Germany PMIs (Sep P) (5:30pm)

EUR PMIs (Sep P) (6pm)

GBP PMIs (Sep P) (6:30pm)

EUR ECB’s Zigman Speaks (6:50pm)

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THURSDAY (24th September)

USD Fed’s Barr Speaks (2026 voter) (12:05am)

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JPY PMIs (Sep P) (10:30am)

AUD Jobs Report (Aug) (11:30am)

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CAD Retail Sales (July) (10:30pm)

USD Initial Jobless Claims (10:30pm)

USD Fed’s Hammack Speaks (2026 voter) (10:50pm)

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FRIDAY (25th September)

GBP BoE’s Lombardelli Speaks (12am)

USD Fed’s Paulson Speaks (2026 voter) (12:10am)

USD Fed’s Williams Speaks (2026 voter) (7:15pm)

USD Durable Goods Orders (Aug P) (10:30pm)

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