Market Update 23/09/2024

Welcome to our daily market update, where we help keep you informed on the latest happenings in the world of FX. If you have any questions or would like anything further explained, please don’t hesitate to reach out to your account manager or email info@cafx.com

Equity markets pulled back slightly, with the S&P 500 falling 0.2% and the Nasdaq down 0.4%, while the Dow managed a small gain of 0.1%. In Europe, the Euro Stoxx 50 dropped 1.5% and the FTSE 100 declined by 1.2%. Meanwhile, the yield on the US 10-year Treasury increased by 2.8 bps to 3.74%. The market is still absorbing last week’s Fed rate cut, which has been supportive for risk assets as USD funding becomes cheaper. However, with equities already at high levels, there’s uncertainty about further upside potential.
 
Over the weekend, Fed’s Waller called the 50bp cut the right move to keep the economy strong, signalling a slightly dovish tone. He also suggested inflation might be on a lower path than expected, with core PCE possibly below target. Future rate cuts will be data-dependent, but he indicated that another 50bp cut could be on the table if the job market deteriorates. Next week brings September’s NFP data.
 
In U.S. politics, Trump stated it’s ‘too late’ for another debate after Harris expressed her willingness to participate in one on CNN in October. However, recent polls show Harris leading in two national surveys of registered voters, conducted by NBC and CBS/Ipsos. Could Trump’s decision to skip another debate impact voter sentiment, especially as Harris gains in the polls? Political uncertainty can influence market sentiment, particularly as election outcomes begin to affect expectations around policy changes, fiscal stimulus, and trade. With Harris’s rising poll numbers, markets may start factoring in potential shifts in economic strategy.
 
NZDUSD dipped to around 0.6210 during the offshore session but recovered after US yields fell following Waller’s remarks, ending the session relatively unchanged. At 0.6230, it’s not that far away from its recent 0.6300 highs, but far from the 0.5850 lows seen recently. If only importers had more confidence in the local market and consumer demand, they could take advantage of favourable hedging opportunities with a flat forward curve. For now, the USD and the ongoing impact of the unexpected 50bp rate cuts will drive the pair’s direction.
 
NZDAUD traded within a narrow range of 0.9145 to 0.9175, as both currencies trade in sync. While NZDAUD is often influenced by rate differentials, recently, commodities like Iron Ore have been the driving factor, pushing the pair higher than interest rates alone would suggest. The key question is whether the RBA will lower AUD rates to bring the rate differential in line with the currency, or if they’ll hold steady. With inflation still above target, it seems likely the RBA will maintain their stance this week. If they remain ‘neutral’, the AUD should stay supported, helping to reduce import costs, particularly from USD-based economies like China. Currently, support is near the recent lows of 0.9135, with resistance around 0.9200. Given the rate differential is pointing lower, we may see support tested before resistance, possibly leading to a move toward 0.9100. However, a surprise rate cut would change the outlook entirely.
 
NZDCNH has fallen below 7.05 after China kept rates unchanged on Friday. Since the market was expecting potential stimulus or a rate cut, this decision has strengthened the CNH.
 
NZDJPY has risen towards 90.00, marking nearly a 4% recovery from its low earlier in the week. BoJ’s Ueda noted that the upward risks to prices seem to be diminishing due to the strength of the yen, suggesting that they may refrain from making any moves in November.
 
NZDGBP dropped to 0.4680, marking its lowest point this month.
 
Today, NZ Trade Balance Data will be released at 10:45 am NZT. This evening, the advance PMIs for Europe and the US will be the key economic highlights. Additionally, Fed speakers will share their insights following last week’s FOMC meeting.

 Here are the latest mid-market rates:

 
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