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■ AUD/USD fell as low 0.6540 overnight, weighted down by lower US equities. AUD/USD later reversed the fall and is currently trading near 0.6580. Today’s ABS monthly household spending indicator (MHSI) for September will provide an important update on spending (11.30am Sydney time). This is a new and experimental series but has a much broader coverage than yesterday’s retail trade figures (~68% of household consumption compared to 30‑35% for retail trade). The MHSI has been substantially weaker than retail trade over recent months. We expect AUD/USD to remain heavy for now because of the impending US election and still solid US economy.
■ USD is trading near 103.9pts, a little lower than where it was this time yesterday. The US PCE deflator rose by 0.2%/mth and 0.3%/mth in headline and core terms respectively in October, in line with the consensus. The annual core PCE deflator stayed at 2.7%/mth. The employment cost index, a good measure of wages growth, decelerated to 0.8%/qtr in Q3 24. The weekly initial jobless claims fell to a low 216k last week. The negative impacts of the hurricanes and strikes is now behind us. True expectations for tonight’s US non‑farm payrolls for October may be higher than the surveyed 105k lift because of the strong outcome for ADP employment yesterday (11.30am Sydney time). We expect the ISM manufacturing survey to have improved in October in line with better outcomes for the regional surveys released so far (1am Sydney time).
■ AUD/EUR eased modestly overnight and is currently trading near 0.6050. The stronger than expected Eurozone Q3 24 GDP and October CPI has caused financial markets to reduce pricing for a 50bp ECB interest rate cut in December. Markets are pricing around a 25% chance of a 50bp cut compared to a little over a 40% chance at the start of the week. We expect the ECB to stick to a 25bp cut in December because the economy is soft but not deteriorating. EUR will receive some support if markets come around to our view.
■ AUD/GBP rose by around 0.6% overnight and is currently trading just above 0.5100. GBP/USD fell sharply by around 1%. UK Gilts yields rose strongly. The two year yield Gilt yield rose by 12.5bp to 4.42%. The moves were a delayed reaction to the UK budget released on Wednesday night. The expansionary budget has raised concerns around the amount of extra debt issuance required. Financial markets are now also expecting less cuts from the Bank of England (BoE). Around 31bp of cuts are priced over the next two meetings compared with around 40bp of cuts before the budget. We forecast one 25bp cut by year end.
■ AUD/JPY fell back below 100 overnight. USD/JPY fell by 1 yen as Bank of Japan Governor Ueda spoke at the post meeting press conference. Governor Ueda said that he was watching the impact of the weaker yen on inflation. Markets interpreted this as hawkish because a BoJ interest rate hike would support JPY and reduce some of the upward pressure on import prices. The BoJ could raise interest rates again as soon as December in our view. This would be strongly supportive of the yen because markets are currently pricing the next 25bp to be delivered around the middle of next year.
To watch for
• JP – Sep P. Industrial Production y/y
• JP – Japan Buying Foreign Bonds
• JP – Sep. Retail Sales y/y
• JP – BOJ Target Rate
• NZ – Oct. ANZ Business Confidence
• AU – Sep. Building Approvals m/m
• AU – Sep. Retail Sales
• AU – Sep. Private Sector Credit Ticker
• CN – Oct. Composite PMI and Oct. Manufacturing PMI
• UK – BOE’s Breeden Speaks
• EU – ECB Publishes Economic Bulletin
• EU – ECB’s Panetta Panetta Speaks
• EU – Sep. Unemployment Rate
• CA – Aug. GDP y/y
• US – Initial Jobless Claims
• US – Sep. Personal Income and Spending
Mid-market rates.
| Currency Pair | Mid-market rate |
| AUD/USD | 0.6579 |
| AUD/NZD | 1.1008 |
| AUD/JPY | 90.91 |
| AUD/CNH | 4.6867 |
| AUD/EUR | 0.6046 |
| AUD/GBP | 0.5101 |
| AUD/HKD | 5.1146 |
Chart of the day
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