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US equities showed mixed performance ahead of the key CPI data release tonight (NZT). The S&P 500 was up 0.3%, the Dow Jones down 0.3%, and the NASDAQ gained 0.7%. In Europe, the Euro Stoxx 50 dropped 0.7% and the FTSE 100 declined 0.8%. Meanwhile, the yield on the US 10-year fell by 6 bps to 3.64%.
Brent oil futures fell below $70 per barrel for the first time since December 2021, extending a price drop driven by strong supply, demand concerns, and heavy speculative selling. WTI crude dropped by as much as 4.2% to its lowest level since May 2023. Weak economic data from the US and China, including disappointing import figures, have raised fears about demand in the two largest oil consumers. This has added to concerns about a potential surplus next year, with record bearish sentiment, further exacerbated by rising output from non-OPEC producers.
The USD had mixed performance ahead of the key US CPI data release tonight (12:30 am NZT), which might provide clarity on whether markets should anticipate a 25 or 50 bps rate cut at next week’s Fed meeting.
■ AUD/USD is currently trading near 0.6650, around where it has been since Friday night’s non‑farm payrolls. The RBA’s chief economist, Sarah Hunter, speaks about “Understanding the journey to full employment” at a conference today (10.20am Sydney time). Given the recent commentary from RBA officials, we do not expect her comments to move AUD. But she may provide insights into the RBA’s current estimate of full employment. Today’s presidential debate could have a modest impact on AUD/USD if it moves USD (see below). And after that, the next important event for AUD/USD is tonight’s US CPI. A soft US CPI could weigh on AUD/USD if risk markets, such as equities, retrench. AUD/USD could even test 0.6571 (50% fibbo).
■ USD traded in a narrow range near 101.7pts overnight. There was no important US economic data released overnight. US Treasury yields fell by 6‑8bp across the curve because of changes to capital rules for US banks. The S&P500 rose by 0.4%. The US presidential debate starts at 11am Sydney time. If President Trump is deemed the winner, the USD will lift modestly. If Vice President Harris is deemed the winner, the USD will fall modestly (see chart of the day).
■ After the debate the focus will be on the US CPI for August (10.30pm Sydney time). The consensus of US economists estimate both the headline and core CPI increased by a modest 0.2%/mth (Wednesday). An increase near 0.2%/mth in the core CPI will not materially shift current market pricing for a 25bp cut next week in our view. However, a modest 0.1%/mth increase in the core CPI could increase pricing for a 50bp cut next week. Under this scenario, the USD could increase if risk markets such as equities retrench because of recession fears.
■ AUD/GBP is currently trading near 0.5090, a touch lower than this time yesterday. AUD/GBP did not react much to the UK labour market data. UK average weekly earnings ex bonuses decelerated to 5.1%/yr in July, from 5.4%/yr previously. The unemployment rate ticked down to 4.1% from 4.2%, indicating a still tight labour market. Financial markets are expecting the Bank of England to cut interest rates at two out of the three remaining meetings this year. This is also our view.
■ AUD/JPY fell below 95.0 overnight. USD/JPY was also fell modestly overnight and is currently trading just under 142.50. Bloomberg reported that Bank of Japan (BoJ) officials said that another interest rate increase from the BoJ will not be needed at next week’s meeting. Markets are pricing no chance of a September increase, and only around a 30% chance of an increase by year end. We have a different view and expect a rate hike to be delivered in October or December. The massively underpriced BoJ rate hike suggests upside potential for the JPY. However stronger rate hike guidance from BoJ officials is likely needed to convince financial markets. AUD/JPY and USD/JPY will fall today if the US core CPI is weaker than expected.
■ AUD/NZD eased modestly overnight. Lower hard commodity prices weighed on this currency pair. RBNZ Assistant Governor Karen Silk is speaking now on ‘The August monetary policy statement, the NZ economic outlook and price‑setting behaviour’ at a Kanga news conference.
Mid-market rates.
| Currency Pair | Mid-market rate |
| AUD/USD | 0.6649 |
| AUD/NZD | 1.0819 |
| AUD/JPY | 94.46 |
| AUD/CNH | 4.7332 |
| AUD/EUR | 0.6033 |
| AUD/GBP | 0.5084 |
| AUD/HKD | 5.1840 |
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