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
■AUD/USD eased to around 0.6580 overnight. The next local economic data release is tomorrow’s Q3 2024 CPI which can make or break our Australian economics team’s forecast that the Reserve Bank of Australia (RBA) will cut the cash rate in December. In turn, the CPI outcome can indicate whether the major AUD cross rates can keep or lose the recent support from interest rate differentials. The RBA is the only major central bank we monitor (except the Bank of Japan) that has not started cutting interest rates.
■USD index pared some of its overnight losses to be back near 104.3pts. US Treasury yields rose by 2‑4bp across the curve. US equities also lifted. The Dallas Fed manufacturing survey was the only US economic data release overnight (‑3pts vs ‑9.4pts expected). With the US presidential election just a week away, we reiterate our views on the three most likely scenarios: a Harris win with a divided Congress, a Trump win with a divided Congress and a Trump win with a united Congress. The betting market odds suggest a Trump win with a united Congress is now the market consensus expectation. As a result, the market reaction to such an outcome will likely be smaller than our previous guidance. Read Chart of the day. The JOLTS report for September is today’s US economic highlight (1am Sydney time).
■AUD/JPY is back below 101. USD/JPY remains about 0.5% higher than where it was this time yesterday. After Japan’s ruling coalition led by the Liberal Democratic Party (LDP) lost its majority in the lower house of parliament at Sunday’s election, Prime Minister Ishiba signalled he intends to stay on as prime minister and seek to form a new government. However, Prime Minister Ishiba will most likely face pressure to increase fiscal spending to secure support from smaller opposition parties he may approach. Negotiations may take weeks. Japan’s Constitution states that a Special Diet Session must be held within 30 days of the election to choose a prime minister, i.e., by 26 November.
■All up, the risks appear skewed to looser fiscal policy than otherwise under the new government. Together with solid US economic data and stronger prospects of a Trump win, political uncertainty in Japan can pressure USD/JPY higher in coming weeks. Nevertheless, any further increase in USD/JPY is unlikely to be linear because we expect Japanese officials to push back against the JPY weakness. Heightened financial market volatility might also encourage the Bank of Japan (BoJ) to keep its policy interest rate unchanged for longer than we currently expect. Our base case remains for the next BoJ rate hike to be delivered in December which is about 30% priced.
■AUD/CAD slipped to around 0.9150. The Bank of Canada’s (BoC) decision to cut the policy rate by 50bp last week was the first larger than 25bp cut delivered by the BoC in an easing cycle outside a recession. BoC Governor Tiff Macklem pushed back on the idea that larger than normal rate cuts can only be delivered during emergencies or times of economic stress. Governor Macklem said ‘it makes sense to take some bigger‑than‑normal steps when you’ve taken some really big steps on the way up’. Governor Macklem added the BoC does not ‘exactly know where the landing is’. We consider the risks are now tilted to a steeper rate cutting by the BoC than we currently forecast with potentially more larger than normal cuts.
Mid-market rates.
| Currency Pair | Mid-market rate |
| AUD/USD | 0.6581 |
| AUD/NZD | 1.1007 |
| AUD/JPY | 100.90 |
| AUD/CNH | 4.7011 |
| AUD/EUR | 0.6087 |
| AUD/GBP | 0.5075 |
| AUD/HKD | 5.1147 |
Chart of the day
Disclaimer:
The market update provided by Corporate Alliance FX (CAFX) is for reference only and does not constitute a bid, levy, offer or invitation to offer for the financial product, the basis for any contract or commitment, a recommendation for the purchase or sale of any investment instruments, financial, legal, tax, investment advice, investment advice or other opinions. It will not be legally liable for any consequences or losses caused by the information or content involved.
Corporate Alliance Group Pty Ltd T/A Corporate Alliance FX (CAFX) (ABN 58 167 119 226, AFSL 523351) (i.e. CAFX), CAFX independently holds the Australian Financial Services licence no. 523351 (AFSL), so CAFX is regulated by the Australian Securities and Investment Commission (ASIC) and, and although ASIC is a strictly regulatory body, it does not endorse a specific financial product. ASIC’s regulation of CAFX applies to all services under the financial licence held by CAFX, including the issuance of foreign exchange settlement, foreign exchange payments, foreign exchange risk control, hedging, market making and providing financial advice.
