AUD Gets Boost From US/China Trade Framework
AUD
The Aussie Dollar is up this morning, following RBA Governor Michelle Bullock's surprisingly hawkish tone last night, which suggested the RBA will not be cutting rates as fast as the market hopes. This is because core inflation is tracking higher than expected (potentially 0.9% versus the RBA's 0.6% forecast), which she warned would force the Bank to keep interest rates "higher for longer." This tighter policy outlook immediately caused the Australian Dollar (AUD) to strengthen significantly, placing all current market focus squarely on the imminent quarterly CPI data release which is out at 11:30AM tomorrow. Asian equities started the week upbeat with the Nikkei +2.5%, Hang Seng +1.1%, and Shenzhen +1.2%. Locally, the ASX finished +0.4% as info tech lead gains +0.9%. Commodities were mixed with the biggest mover being Natural Gas -2.2% Looking ahead, besides Australian CPI out tomorrow, the rest of the week remains quiet.
USD
AUDUSD opens up by 0.7% from yesterday at 0.6557. Equities saw the NASDAQ trading +1.7%, the S&P 500 +1%, and the Dow Jones +0.5%. The US Federal Reserve has recently pivoted toward a more dovish monetary policy stance, reinforced by the latest CPI data. The September core CPI reading of 3.0% came in slightly below the 3.1% market forecast, which lessened the pressure on the Fed to maintain restrictive rates. This cooling inflation, alongside mounting concerns about a softening US labor market and general economic uncertainty, strongly supports expectations for an imminent rate cut. This dovish outlook caused the US Dollar to weaken modestly against major currencies, particularly risk-sensitive pairs like the AUD. Market focus is now centered on the Fed's upcoming policy meeting early Thursday morning, where a 25 basis point rate cut is almost fully priced in, and on the forward guidance Chair Jerome Powell will provide regarding potential subsequent cuts in the face of ongoing economic data disruption caused by the government shutdown. Besides the rate decision, we have the Richmond Manufacturing Index and the Consumer Confidence report. Given that manufacturing has struggled and consumer optimism has been trending down, weaker numbers than last time are expected.
EUR
AUDEUR opens slightly up at 0.5629 off the back of Governor Bullock’s comments. European equities opened quietly with Stoxx and CAC the biggest movers +0.3% and -0.2% respectively. It has been fairly quiet as of recent, most relevant data was yesterdays German Ifo Business Climate Index, a major survey showing how company executives feel about the current economy and their future outlook. The Ifo Index for October actually showed a small recovery, rising to 88.4 from 87.7 in September, beating forecasts. The recovery was driven entirely by better expectations for the coming months, meaning businesses are starting to feel more hopeful about 2026. However, their assessment of the current business situation remained slightly weak. Although it does suggest that the worst for the German may be in the past. Although looking forward we have some key data out later in the week with German Prelim CPI, German Prelim GDP and Spanish CPI due out Thursday evening.
GBP
AUDGBP opens at 0.4916, reaching just above a 2 week high. The FTSE was also up 0.1%. There was little data out of the UK yesterday with CBI Realizes Sales coming in at -27, which was better than forecasts of -28. Today we have BRC Shop Price Index y/y expected at 1.6%. Besides that, the UK remains fairly quiet in terms of the rest of the week.
NZD
AUDNZD opens up at 1.1360. Tomorrow, RBNZ Governer Hawkesby will speak about central bank independence at the Directors and Senior Officers Workshop in Auckland. Beyond this, data for the Kiwi is fairly quiet.