Market Briefing: Markets hit an air pocket
Market wobbles. A small bout of risk aversion overnight. US equities declined while the USD ticked up. AUD & NZD lost some ground.
RBNZ meeting. RBNZ expected to cut rates again today. Will it flag even more easing down the track? NZD & AUD/NZD volatility likely to lift today.
Fed speak. Markets focused on Fed Chair Powell's upcoming Jackson Hole speech (Fri night AEST). Will Chair Powell be more 'dovish' than priced?
Global Trends
A few risk-off wobbles across markets overnight. There was no new major news driving the moves, rather a pullback in some markets with stretched valuations after the Northern Hemisphere summer lull seems to have been a factor at play. This isn’t unusual at this time of the year with risk assets tending to come under a bit of pressure towards the backend of the US/European summer.
US equities dropped back (S&P500 -0.6%) with larger falls coming through across the tech-sector (NASDAQ -1.5%). But this comes after a very strong run with the S&P500 rising by ~15% since the start of May. The NASDAQ increased by ~22% over this period. The overnight weakness in US stockmarkets generated a little safe-haven demand for US bonds (yields declined ~1-3bps across the curve) and supported the USD. EUR eased a bit (now ~$1.1647), as did GBP (now ~$1.3491). The interest rate and risk sentiment sensitive JPY outperformed, while cyclical currencies such as the AUD (now ~$0.6454) and NZD (now ~$0.5893) underperformed with the latter also focused on today’s RBNZ meeting where another interest rate cut is anticipated (12pm AEST).
Outside of the RBNZ meeting and UK CPI inflation data (4pm AEST) there aren’t any other major economic events scheduled during today’s Asian trade. The minutes of the last US Fed meeting are due tomorrow morning (Thurs 4am AEST). Looking ahead the focal point for markets this week is Fed Chair Powell’s speech at the annual Jackson Hole Symposium (Fri night AEST). In our view, if discussed, Chair Powell should signal some policy easing is likely later this year, as per the Fed’s baseline forecasts. That said, we doubt Chair Powell will explicitly call out a rate cut in September particularly as there is another round of monthly US data (including CPI and a jobs report) released before the next Fed meeting. As mentioned earlier this week, what's priced in matters and given the ‘dovish’ skew in market pricing we think a more ‘cautious’ tone from Chair Powell, coupled with relative resilience in the US PMIs (released Thursday), could see markets pare back their aggressive near-term Fed rate cut expectations. If realised, this might give the USD some more support.
Global event radar: RBNZ Meeting (Today), Global PMIs (Thurs), Fed Chair Powell (Fri night), US PCE Deflator (29th Aug), China PMIs (31st Aug), EZ CPI (2nd Sep), US ISM (3rd Sep), US Jobs (5th Sep)
Trans-Tasman Zone
The modest bout of risk aversion overnight, which saw equities fall and generated some safe-haven demand for US bonds and the USD, exerted downward pressure on the AUD and NZD (see above). The AUD (now ~$0.6454) is tracking a bit under its 1-year average, as is the NZD (now ~$0.5893). The backdrop also saw the AUD and NZD underperform on the crosses with the AUD shedding ~0.5-0.7% versus the EUR, GBP, CNH, and JPY over the past 24hrs.
Today, attention will be on the Reserve Bank of NZ’s policy meeting and updated forecasts (12pm AEST, press conference from 1pm AEST). As discussed earlier in the week, another 25bp RBNZ rate cut is universally expected which would lower the policy rate to 3%. The outstanding question is how much further interest rates might go in NZ after that? We think there is a risk the RBNZ’s latest assessment concludes that settings need to move beyond ‘neutral’ and more easing is necessary given NZ's economic struggles with the new interest rate projections potentially showing a chance of at least one more rate cut coming through. In our opinion, this type of messaging could exert some further downward pressure on the NZD and might give AUD/NZD (which is trading near its 200-day moving average) support.
With respect to AUD/USD, as flagged above, the key focus for markets this week is US Fed Chair Powell’s Jackson Hole speech (Fri night AEST). We believe that based on where US Fed rate pricing now is Chair Powell might have a hard time sounding more ‘dovish’ than what is already factored in. Markets are assigning a ~85% chance the US Fed lowers interest rates in mid-September. Outcomes relative to expectations matter for markets. Hence, in our opinion, a paring back of near-term US rate cut expectations could give the USD a helping hand in the near-term which if realised may drag a little more on AUD/USD.
AUD & NZD event radar: RBNZ Meeting (Today), Global PMIs (Thurs), Fed Chair Powell (Fri night), AU CPI (27th Aug), US PCE Deflator (29th Aug), China PMIs (31st Aug), EZ CPI (2nd Sep), US ISM (3rd Sep), AU GDP (3rd Sep), RBA Gov. Bullock Speaks (3rd Sep), US Jobs (5th Sep)
AUD levels to watch (support / resistance): 0.6380, 0.6420 / 0.6520, 0.6580
NZD levels to watch (support / resistance): 0.5800, 0.5860 / 0.5930, 0.5990
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
WEDNESDAY (20th August) JPY Trade Balance (July) (9:50am) CNY Loan Prime Rate (1yr/5yr) (11am) AUD RBA’s McPhee & Jones Speak (12pm) NZD RBNZ Decision (12pm) NZD RBNZ Gov. Hawkesby Speaks (1pm) GBP CPI Inflation (July) (4pm) EUR ECB Pres. Lagarde Speaks (5:10pm)
THURSDAY (21st August) USD Jackson Hole Symposium USD Fed’s Waller Speaks (1am) USD FOMC Meeting Minutes (4am) USD Fed’s Bostic Speaks (5am) NZD RBNZ Gov. Hawkesby Speaks (6:10am) NZD Trade Balance (July) (8:45am) AUD PMIs (Aug P) (9am) JPY PMIs (Aug P) (10:30am) EUR France PMIs (Aug P) (5:15pm) EUR Germany PMIs (Aug P) (5:30pm) EUR PMIs (Aug P) (6pm) GBP PMIs (Aug P) (6:30pm) USD Fed’s Bostic Speaks (9:30pm) USD Initial Jobless Claims (10:30pm) USD PMIs (Aug P) (11:45pm)
FRIDAY (22nd August) USD Jackson Hole Symposium USD Leading Index (July) (12am) JPY CPI Inflation (July) (9:30am) GBP Retail Sales (July) (4pm) EUR Wages (Q2) (7pm) CAD Retail Sales (June) (10:30pm)
SATURDAY (23rd August) USD Fed Chair Powell Speaks (12am)
*Note, all times/dates provided are AEST
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