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October 23, 2024
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Market Briefing: US election on the horizon

  • Treading water. US equities consolidated. Yields generally ticked up. EUR & JPY softer. AUD & NZD unwind some of the falls from yesterday.

  • US politics. US election less than 2 weeks away. Odds of a Trump/Republican win on the rise. We don't think the USD is fully factoring this in.

  • Macro events. Bank of Canada expected to cut rates by 50bps tonight. RBNZ Gov. Orr speaks in the morning. Global PMIs also due tomorrow.

Most major markets have been in a bit of a holding pattern over the past few sessions given the lack of fresh top tier economic news. US equities have consolidated with the S&P500 tracking within 0.5% of its record highs. Bond yields have generally ticked up further with the benchmark US 10yr rate (now ~4.21%) hovering around the top of the range occupied since late-July. Expectations the US Federal Reserve might proceed cautiously after kick starting its easing cycle with an outsized 50bp rate cut in September continue to be factored in. A 25bp rate cut by the US Fed in early-November (a few days after the US Presidential Election) is largely discounted, but by mid-2025 only ~110bps of easing is now priced. This is down from ~180bps in late-September. The Fed’s Schmid, a voting policymaker next year, indicated that a measured approach may be the way to go as lowering rates gradually “would provide time to observe the economy’s reaction” to the adjustments and give them time to assess at what level settings are ‘neutral’.

Across commodities, oil is firmer with WTI crude gaining 2.2% yesterday. That said, at ~US$71.40/brl WTI crude is still below its 1-year average. Industrial metals also edged a touch higher with copper and iron ore rising by ~0.6-0.9%. In FX, the USD tread water with a softer EUR, which has dipped sub ~$1.08, offset by an uptick in USD/JPY (now ~151.10, a high since end-July). Ahead of tonight’s Bank of Canada meeting, where a 50bp rate cut is viewed as a strong possibility by economists and markets because of low inflation, sluggish growth, and widening labour market cracks, USD/CAD (now ~1.3819) is within striking distance of its 2024 peak. Elsewhere, NZD (now ~$0.6040) and AUD (now ~$0.6680) outperformed over the past 24hrs, yet on net the overnight strength only partially counteracted the previous days weakness.

The US Presidential Election is less than 2 weeks away. Some markets have been adjusting to the chances of a Trump/Republican victory, but we don’t think all are factoring in enough risk premium (such as the USD) given what it could mean for the outlook due to the growth and inflation impacts generated by large-scale tariffs, greater fiscal spending, and geopolitical spillovers. Markets might react like 2016, albeit to a smaller scale given Trump’s win was arguably more of a surprise back then. In our view, a recalibration of the US inflation and interest rate outlook, as well as possible downward revisions to global growth, and heightened China risks, may see the USD gain ground in the lead up to and post election day.


Global event radar: BoC Meeting (Tonight), Global PMIs (Thurs), US GDP (30th Oct), BoJ Meeting (31st Oct), China PMIs (31st Oct), EZ CPI (31st Oct), US PCE Deflator (31st Oct)


AUD corner

The AUD has nudged up over the past 24hrs, but as outlined above, the moves have only partially offset falls recorded earlier in the week. At ~$0.6680 the AUD is hovering slightly above its ~6-month average. The AUD also perked up a bit on the crosses with gains of ~0.3-0.6% recorded against EUR (now ~0.6185), JPY (now ~100.94), CAD (now ~0.9231), GBP (now ~0.5145), and CNH (now ~4.7669). AUD/NZD (now ~1.1057) ticked up a more modest ~0.2%.

The next major piece of domestic economic data is Q3 CPI, however that isn’t due until 30 October. But barring a large downward surprise in core inflation we doubt the CPI will move the needle that much. In our view, the latest monthly jobs figures reaffirmed that local labour market conditions remain positive, and that the RBA looks to be on a different trajectory to its global peers. This was something Deputy Governor Hauser discussed a few days ago when he stated that the RBA cash rate “won’t fall as much or as early as other banks” with policymakers alert and ready to act in either direction. We continue to believe that the start of a modest RBA interest rate cutting cycle remains a story for H1 2025.

On balance we believe the divergence between the RBA and others should be AUD supportive against currencies like the EUR, CAD, GBP, and NZD where their central banks have started to lower rates due to weaker growth and receding inflation. The diverging macro trends may be on display over coming days. We think the Eurozone PMIs (Thurs AEDT) should show sluggish momentum is continuing, while the Bank of Canada is widely expected to cut rates by another 50bps tonight (12:45am AEDT). Tomorrow morning RBNZ Governor Orr could also keep the door firmly open to further interest rate reductions when he speaks on policy (4am AEDT).

However, versus the USD, we think that the AUD’s near-term upside is likely to be more limited and that downside risks are becoming more pronounced. The US Election is just around the corner (5 November) and odds former President Trump retakes the White House are on the rise. As our chart shows, the polls across the battleground states that typically decide the outcome of the Electoral College are now favouring Trump and his policy platform is generally viewed as being USD positive.

AUD event radar: BoC Meeting (Tonight), Global PMIs (Thurs), AU CPI (30th Oct), US GDP (30th Oct), BoJ Meeting (31st Oct), China PMIs (31st Oct), EZ CPI (31st Oct), US PCE Deflator (31st Oct)

AUD levels to watch (support / resistance): 0.6630, 0.6660 / 0.6750, 0.6780


Market Moves

Peter Dragicevich

Currency Strategist - APAC

peter.dragicevich@corpay.com


Upcoming Events

WEDNESDAY (23rd October)

SGD CPI Inflation (Sep) (4pm)

THURSDAY (24th October)

USD Fed’s Bowman Speaks (12am)

GBP BoE’s Breeden Speaks (12am)

CAD Bank of Canada Decision (12:45am)

EUR ECB President Lagarde & Lane Speak (1am)

EUR ECB’s Cipollone Speaks (2:30am)

NZD RBNZ Governor Orr Speaks (4am)

USD Fed’s Beige Book (5am)

EUR ECB’s Knot Speaks (5:15am)

EUR ECB’s Centeno Speaks (6am)

GBP BoE Governor Bailey Speaks (7:30am)

AUD PMIs (Oct P) (9am)

JPY PMIs (Oct P) (11:30am)

EUR France PMIs (Oct P) (6:15pm)

EUR Germany PMIs (Oct P) (6:30pm)

EUR PMIs (Oct P) (7pm)

GBP PMIs (Oct P) (7:30pm)

USD Initial Jobless Claims (10:30pm)

USD Fed’s Hammack Speaks (11:45pm)

FRIDAY (25th October)

GBP BoE’s Mann Speaks (12am)

USD PMIs (Oct P) (12:45am)

EUR ECB’s Lane Speaks (4am)

GBP BoE Governor Bailey Speaks (6:45am)

NZD Consumer Confidence (Oct) (8am)

JPY Tokyo CPI Inflation (Oct) (10:30am)

EUR Germany IFO (Oct) (7pm)

CAD Retail Sales (Aug) (11:30pm)

USD Durable Goods Orders (Sep P) (11:30pm)

*Note, all times/dates provided are AEDT

About the author

Peter Dragicevich

Peter Dragicevich

Currency Strategist - APAC

Peter analyses and forecasts global macroeconomic trends to draw out possible implications for interest rates, commodity pricing, and the FX markets for Australia and across Asia.

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