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AUD

30 Oct 2023

China PMIs & BoJ in focus

• Positive tone. Equities rose & oil prices extended their slide. Markets are taking the Middle East developments in their stride. The USD also softened.• AUD rebound. Firmer equities & a positive AU retail sales report which reinforced RBA rate hike expectations has helped the AUD recover some lost ground.• Asian focus. Today attention will be on the China PMIs & the BoJ decision. Another BoJ tweak could support the weak JPY, which in turn weighs on the USD. Markets have started the week on a more positive footing. Investors appear to be taking the Middle East developments in their...

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30 Oct 2023

It’s quiet. Too quiet.

It may be the most wonderful time of the fear, but foreign exchange markets remain remarkably calm. 1-month implied volatility – a measure of expected swings in exchange rates – in G7 currency pairs is holding almost a full standard deviation below post-2000 norms, and remains well below comparable indicators in other asset classes. We doubt this can be sustained as geopolitical risks simmer, outcomes diverge across the major economic blocs, and stress grows on the global financial system. We’d try to remind market participants of the ghosts of previous foreign exchange shocks – major moves tend to occur just...

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26 Oct 2023

Push & pull forces

• Market vol. Equities lower as earnings disappoint. US yields reverse despite robust US GDP as inflation pressures ease. Oil lower in spite of Middle East tensions.• USD trends. Lower yields took some of the heat out of the USD. US economic strength boosted the USD recently. But was Q3 as good as it gets?• AUD pulse. AUD traded in a ~2% range this week. Q3 CPI supports the case for another RBA hike. Yield spreads shifting in favour of a higher AUD. Financial market gyrations are continuing, though overnight not all asset classes reacted uniformly. The slide in equities...

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24 Oct 2023

CPI keeps the pressure on the RBA

The Q3 Australian CPI report positively surprised, further opening the door to another 25bp rate rise by the RBA as soon as the 7 November meeting. While base-effects as last year’s larger price increases rolled out of calculation, pushed annual CPI lower (headline CPI decelerated to 5.4%pa and trimmed mean (the RBA’s preferred core inflation gauge) slowed to 5.2%pa), the underlying inflation pulse remains quite strong. The pull-back in annual inflation was less than anticipated, and quarterly growth stepped up with headline and core CPI both rising by 1.2%qoq. This was above the markets forecast and well north of the...

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24 Oct 2023

Australian inflation in focus

• Data trends. Divergence between the US & Europe weighed on EUR & GBP. The AUD held up against the firmer USD & outperformed on the crosses.• China stimulus. China will issue more debt to fund infrastructure projects. Supports our view that China’s economy has passed its cyclical bottom.• RBA & CPI. Gov. Bullock stressed the Board “will not hesitate” to lift rates again “if there is a material upward revision” to the inflation outlook. CPI released today. Following the bout of volatility induced by sharp swings in bond yields earlier this week markets calmed down overnight. Equities rose with...

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