US Data Remaining Firm

AUD

The Aussie Dollar plows further south against all the major trading pairs, as markets prepare for another jumbo-sized rate hike from the US, erasing any short-lived gains at the end of last week. Asian equities finished Friday’s session overwhelmingly higher, the Nikkei outperformed up 3.25%. The ASX closed the session +1.75% in a broad-based rally led by the energy sector. Commodities did little to support the Aussie with Gold and Iron Ore losing -1.3% each, whilst copper lost -0.5%. No data locally from the end of last week however China did post inflation data, with CPI y/y coming in on par at 2.8%, prior 2.5%. CPI is cracking higher, but still within the PBOC target band, leaving the Bank policy room should they desire. PBoC Governor Yi says more support is coming, will accelerate implementation of prudent monetary policy. An insight into how China has fared through its lockdowns over the last year will be offered when they release GDP and Retail Sales numbers tomorrow. It looks to be a slow start on the domestic data front, though it will kick off when the RBA releases its Monetary Policy Meeting Minutes tomorrow with Unemployment data headlining the remainder of the week.

USD

The AUD/USD plunged back to trade at similar levels seen after the US posted red-hot inflation numbers last week, trading at 0.6206 currently. US Equity markets shied away, a weak session from Wall St to close out last week with the NASDAQ losing -3.1%, S&P 500 -2.4%, and the Dow Jones -1.3%.  US 10-year yields rose 8bps to close above 4% while crude oil dipped -3.9% and closed at $85.60 a barrel. US Retail Sales for September were flat with the result weaker than expectations of a 0.2% gain. Tempering the weak headline result, core measure all exceeded expectations. The University of Michigan Sentiment Survey for October rose to 59.8, up from 58.6 and printing better than expectations of 58.88. Also of importance was the University of Michigan Inflation Expectations results with 1 year inflation rising for the first time since March and jumping to 5.1% from 4.7% and coming in significantly higher than expectations of a decline to 4.6%. Fed Speaker Daly said that last week's Consumer Price Index (CPI) data was not that surprising, and that 4.5%-5% is most likely top fed funds rate, then held there. Several FOMC participants will be making public remarks this week. Market participants will likely be paying close attention as the blackout period prior to the November FOMC meeting commences at the end of next week. Most notable will be comments from voting members Williams and Bullard.

EUR

The AUD/EUR continues its fall from grace even as turmoil continues in Europe, as a divergence between the Australian and European Central banks drags the pair down to 0.6381 this morning. European markets simmering early strong gains to close just in positive territory, with the CAC the standout up +0.9% while gains elsewhere were either side of +0.5%. Eurozone data revealed in the late Friday session saw Spain’s inflation heightening less than estimates, while France’s data followed suit. The International Monetary Fund (IMF) predicted recessions in Italy and Germany in 2023. Therefore, if it looked gloomier, the Eurozone scenario now looks even worse. Some ECB speakers crossed wires. ECB’s Vasle said 75 bps in October and December might be appropriate, while ECB’s Centeno added that the ECB must be “tough” on inflation while suggesting that QT discussions should be pushed to the following year. Tonight will see the German Bundes Bank Monthly Report, whilst it remains a quieter week out of Europe.
 

GBP

The AUD/GBP fell down to trade at 0.5526 this morning even despite the drama in UK politics. It was announced that Kwasi Kwarteng is to be removed as UK Chancellor with Jeremy Hunt announced as new Chancellor, who promised spending cuts in a desperate bid to restore credibility. It was also suggested that a group of influential Tory MP’s would call on Truss to resign as PM this week. Truss held a press conference in which she reiterated her intention to deliver a low tax and high growth economy though stressed the need to reassure markets. As expected, she reversed the decision to freeze corporate tax increases with the updates fiscal plan still due at the end of October.  Also, over the weekend, BoE Governor Bailey gave his seal of approval to the corporate tax U-turn but said the fiscal measures announced to date (including the expensive energy price cap) “will require a stronger response than we perhaps thought in August”, possibly foreshadowing a big rate hike come the November meeting (the market is pricing a hike on the order of 100bps). 

NZD

The AUD/NZD capping off the shocker session for the AUD but keeping losses to a minimum, falling to trade at 1.1145 this morning. In early data today, the BuisnessNZ Service Index came in worse than expected, at 55.8 compared to 58.6 but did little to entertain markets, only helping the AUD gain a few basis points. Markets are awaiting the release of Tuesday’s Kiwi Inflation data. Projections for annual inflation data for the third quarter are extremely lower at 6.6% vs. the former release of 7.3%.