Sentiment Improvement Protecting AUD

The AUD was mixed against the majors, as it was mainly taking direction from other macroeconomic policy decisions with little data being released domestically. Asian equities finished the session in the red, with the Nikkei the worst performing down -1.0%. The ASX was down -0.6%, coming close to a four-month low. This is despite the improved risk outlook derived from the US overnight (see more in USD section), which spurred some minor gains on Wall Street. The Nasdaq was up +0.4%, the Dow Jones +0.2%, while S&P 500 was trading +0.1% higher late in the session. Commodities continuing their strong run, in particular Iron Ore which is still steaming ahead even after its stellar start to the week, up +0.6%. What could offer some optimism for the AUD is the prospects of NSW starting to reopen as the state hit 70% double jab rate yesterday afternoon. Australia’s most populous state planning to go ahead with retail and hospitality opening for the first time since late June, providing a much-needed boost to local businesses and the economy, though Q3 data will still likely disappoint. Another quiet day ahead, with only the AIG Services Index released. The AUD will look to take more direction from market sentiment from China and the US.

USD

The AUDUSD retreating slightly as US Treasuries Yields reached their highest since June this year, the pair trading at 0.7275 this morning. Market moods picked up modestly yesterday on the news that US Senate Republican Leader Mitch McConnell is planning to propose a short-term suspension of the U.S. debt ceiling. The proposal will avert a national default and economic crisis until Democrats are able to pass a more permanent solution before the end of the year. The US also had some strong data with ADP Employment for September printing at 568k, better than expectations of 430k. If these figures are confirmed by Friday’s labour report, the Fed might have another source of pressure to start rolling back its Quantitative Easing program sooner rather than later. Crude Oil which are at some of the highest prices in 7 years eased off falling -2.3% to $77.10 a barrel. It’s also a quiet day for the US, with the aforementioned official Unemployment data being the main release of note.
 

EUR

The AUDEUR charging ahead to the highest levels seen since mid-June, trading at 0.6293 at time of writing. Improved market sentiment didn’t translate to European Equities and closed heavily in the red with losses of -1.2% for the FTSE and CAC, whilst the DAX closed 1.5% lower. In EU data, German factory orders for August were -7.7% MoM, a sharp decline from a previous +4.9%, primarily caused by supply chain bottlenecks. The global surge in energy prices continued unabated yesterday as European gas prices jumped by another 23% to a new all-time high amid supply fears as the heating season is approaching on the Northern hemisphere. ECB President Lagarde yesterday reiterated that ECB should not overreact to supply shortages or rising energy prices, as monetary policy cannot directly affect these phenomena. Discussions about the persistence of inflation will likely gather pace ahead of the next meeting later this month, while markets are now pricing the first ECB rate hike for Q3 2023.

GBP

The AUDGBP trading slightly higher this morning, currently sitting at 0.5353. The uncertainty about what additional impact Brexit is having on supply chains, wages and prices appears to have taken an additional toll on investor sentiment. Johnson expects the post Brexit transition will result in a ‘high-wage, high-skill, high-productivity economy. Data out of the UK was weaker than expected with it’s Markit Construction PMI was 52.6, missing expectations of 54. It’s a quiet end to the week on the data front from the UK, with inflationary supply pressures taking the front seat.

NZD

The AUDNZD pushing higher even as the RBNZ raised its interest rates yesterday, the pair trading at 1.0521. The Kiwi central bank raising its headline rate by 25bps to 0.5% as expected, and importantly there was nothing in the communication to alter the expectations in the market of future rate moves. It failed to move currency markets as most were already positioned for the hikes, but it marks the start of a tightening cycle that had been expected to begin in August, but was delayed after an outbreak of the coronavirus Delta variant and a lockdown that is continuing in its biggest city Auckland.