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Equity markets showed mixed performance, with US stocks declining due to expectations of slower rate cuts from the FOMC and rising bond yields. The S&P 500 fell 0.6%, while the Euro Stoxx 50 and FTSE 100 both gained 0.3%. Meanwhile, the yield on the US 10-year Treasury increased by 4.9 bps to 4.016%, highest level since August. Brent crude jumped to $80 a barrel, with mounting tensions in the Middle East raising speculation that Israel may attack Iran’s oil infrastructure.
Due to stronger job growth in September, expectation of a continued slowdown in inflation has fuelled speculation that policymaker will choose a smaller rate cut next month. Money markets have largely ruled out another 50bps cut this year and the likelihood of a 25bps reduction in November is now pricing around 80% chance.
The USD and US bond yields jumped after non‑farm payrolls expanded strongly in September. Previous gains in payrolls were revised up materially and the unemployment rate decreased to 4.1%. The USD is also supported by the conflict in the Middle East. Currencies could be volatile this week as two conflicting forces play out: a solid US economy but downside risks to the global economy from the conflict in the Middle East.
Key currency views for the week
– AUD/USD could test 0. 0.6685 because of the conflict in the Middle East.
– AUD/EUR and AUD/GBP will test support at 0.6094 and 0.5084 respectively if financial market volatility picks up.
– AUD/NZD will receive some modest support if the RBNZ cuts interest rates by 50bp this week as we and the consensus expect.
– AUD/JPY can easily test support at 97.5 if the Middle East tensions ramp up and financial market volatility lifts further.
– AUD/CAD can fall towards support at 0.9139 if global risk sentiment weakens and oil prices lift further.
– AUD/CNH could test 4.6814 if the situation in the Middle East deteriorates materially.
Mid-market rates.
| Currency Pair | Mid-market rate |
| AUD/USD | 0.6757 |
| AUD/NZD | 1.1022 |
| AUD/JPY | 100.05 |
| AUD/CNH | 4.7756 |
| AUD/EUR | 0.6156 |
| AUD/GBP | 0.5164 |
| AUD/HKD | 5.2481 |
Chart of the day
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