Market Briefing: Let the good times roll
Have a look at the latest edition of our Event Radar & Views In A Nutshell pack.
Upbeat vibes. Largely as expected US CPI reinforced US Fed rate cut thinking. US equities rose. USD softer. AUD touched a 10-month high.
US cuts. US Fed looks set to cut rates next week. A steady downshift should unfold, in our opinion. This is a medium-term USD headwind.
Data flow. On top of the US Fed meeting next week China data is due (Mon), as are US retail sales (Tues night). AU employment also scheduled (Thurs).
Global Trends
Markets remain in a jovial mood with the prospect of lower US interest rates supporting risk sentiment and keeping the USD on the backfoot. The latest reading of US CPI inflation was released overnight and the data largely matched consensus estimates. Headline US inflation ticked up a bit in August (now 2.9%pa), while core inflation held steady (now 3.1%pa). But under the surface there were a few encouraging signs for policymakers. The pass-through from tariffs to ‘goods’ inflation has been more limited than anticipated, and firmer services inflation in August was due to a surge in airfares that is unlikely to be repeated or reflected in the PCE deflator (the Fed’s preferred inflation gauge). At the same time more cracks in the US jobs market popped up with weekly initial jobless claims jumping up to a near 4-year high, though that partly stems from an usual gain in Texas.
Reinforced expectations looking for the US Fed to deliver a steady stream of rate cuts exerted a little more downward pressure on bond yields with the benchmark US 10yr rate (now ~4.02%) hovering near the bottom of its multi-month range. The US 2yr yield (now ~3.54%) is close to its cyclical low with markets more than fully factoring in a 25bp rate cut by the US Fed next week and ~6 reductions by January 2027. The predicted Fed policy easing helped extend the positive run in US equities with the S&P500 (+0.9%) touching yet another record high. In FX, the mix of lower US bond yields and an on hold European Central Bank, who also conveyed little urgency to ease policy further, gave the EUR some support (now ~$1.1739). GBP also ticked up (now ~$1.3577) and USD/JPY drifted lower (now ~147.16). Cyclical currencies strengthened with the NZD (now ~$0.5977) and AUD (now ~$0.6661) outperforming. The AUD is at levels last traded in early-November.
The data calendar into the end of the week is limited, with markets lasering in on the upcoming US Fed decision (next Thursday morning AEST). Short-term bursts of headline driven volatility are possible, however barring an exogenous shock we don’t believe the moves will be overly large or sustained. Overall we remain of the view that slower US growth and impending downshift in US interest rates, coupled with reduced capital inflows into US financial assets, should see the USD trend lower over the next few months.
Global event radar: China Data (15th Sep), US Retail Sales (16th Sep), BoC (17th Sep), US Fed (18th Sep), BoE (18th Sep), BoJ (19th Sep), Global PMIs (23rd Sep)
Trans-Tasman Zone
The positive vibes in markets, as illustrated by firmer equities and industrial metals like copper, and weaker USD on the back of the outlook for lower US interest rates has seen the NZD and AUD add to recent gains overnight (see above). At ~$0.5977 the NZD has pushed back over its 100-day moving average, while the AUD (now ~$0.6661) is up near levels last traded in early-November. The AUD also extended its positive run on the major cross-rates with gains of ~0.4-0.6% recorded versus the EUR, JPY, GBP, CAD, and CNH over the past 24hrs. AUD/EUR (now ~0.5676) is around a ~3-month peak, AUD/JPY (now ~98.04) is within striking distance of its year-to-date high, AUD/GBP (now ~0.4906) is closing in on its 1-year average, and AUD/CNH (now ~4.7387) is at the top of the range it has occupied since December.
As mentioned above, today’s economic release calendar is limited. Next week the China data batch (Monday), US retail sales (Tues night AEST), and US Fed decision (Thurs morning AEST) will be in the spotlight. As will the Australian jobs report (Thursday). We think the China data could show positive, albeit not spectacular, momentum, while in the US consumer spending may have softened and the Fed looks set to re-start its interest rate cutting cycle. Locally, the labour market data is forecast to be solid.
On net, we don’t think any short-term rebounds in the USD/pull-backs in the AUD will be overly large or last too long. Over the medium term (i.e. next ~3-12 months) we think the AUD can continue to edge higher. In our view the AUD should be underpinned by a combination 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 across its export sector, firmer momentum in Australia’s economy, and ongoing cautious approach from the RBA with respect to its rate cuts.
AUD & NZD event radar: China Data (15th Sep), US Retail Sales (16th Sep), BoC (17th Sep), US Fed (18th Sep), NZ GDP (18th Sep), BoE (18th Sep), BoJ (19th Sep), Global PMIs (23rd Sep), AU CPI (24th Sep), RBA (30th Sep)
AUD levels to watch (support / resistance): 0.6520, 0.6580 / 0.6680, 0.6720
NZD levels to watch (support / resistance): 0.5860, 0.5920 / 0.6010, 0.6050
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events)
FRIDAY (12th September) AUD RBA’s Jones Speaks (12pm) GBP GDP – Monthly (July) (4pm) EUR ECB’s Rehn Speaks (6pm) EUR ECB’s Nagel Speaks (6:15pm)
SATURDAY (13th September) USD Uni. of Michigan Sentiment (Sep P) (12am)
*Note, all times/dates provided are AEST
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