Commodity Currencies in Vogue
AUD
The AUD continuing its hot streak of ascendency against most majors (barring NZD) with commodity currencies the major beneficiary of surging precious metals demand. The AUD has also enjoyed recent return to risk appetite, understandably so with the CBOE Volatility Index (VIX) dropping to 15.7, near the lowest since February 2020. Despite the positive market sentiment, Asian equities were largely mixed on the close with the CSI underperforming down -0.25%, the Nikkei up +0.1%, and the ASX +0.5% higher, led by technology and financial stocks. Iron Ore was the biggest mover in commodities as it gained +2.3%, Gold was softer losing out -0.1%, and Copper was up +0.8% in what was a strong session for commodities. On the macroeconomic front, the Australian economic docket is absent, though positive news on the COVID-19 front is that Melbourne will welcome vaccinated residents without quarantine, so as the country eases lockdowns, the economic recovery would not be limited.
USD
The AUDUSD has made leaps and bounds in October, breaking the 0.75 barrier for the first time in three months to trade at 0.7516 this morning. The Greenback remained under selling pressure and shed ground against all of its major rivals, as the USD index (measure of USD against 6 rival currencies) edged lower by -0.13%. Though the USD enjoyed some short-lived earlier demand as US government bond yields jumped to fresh multi-month highs, with the yield on the 10-year Treasury note peaking at 1.673%, but retreating towards 1.64%. The positive risk sentiment helped push US Equities with S&P 500 and the Dow Jones gaining +0.4% each while the NASDAQ was flat. Little notable data out of the US last night, though the Fed’s Beige Book which gathers anecdotal information on current economic conditions in the Fed’s Districts showed that economic activity grew at a “modest to moderate rate” pace in September. Outlooks for near-term economic activity remained positive, overall, but some Districts noted increased uncertainty and more cautious optimism than in previous months with increasing pressures on labour supply. Later tonight we’ll have Unemployment data as the headline piece of data before FOMC Member Waller speakers later on.
EUR
The AUDEUR also taking leaps and bounds in recent weeks as it now trades at similar levels to mid-May, as it currently trades at 0.6450. European Equity Indices were soft with CAC being the best off, gaining +0.5%, the FTSE up +0.1%, and Dax even on the day. European Central Bank (ECB) Governing Council member Francois Villeroy reiterated on Wednesday that the inflation spike in the EZ is expected to be temporary, the ECB's monetary policy must be vigilant but they can also afford to stay patient, Villeroy further added. The EU released the final version of the September Consumer Price Index, which was confirmed at 3.4% YoY in September, while the core annual reading printed at 1.9%, validating the European Central Bank’s wait-and-see stance. Looking ahead for Europe it’s a barren day today for data, though tomorrow will pop off with a handful of Flash Manufacturing and Services PMI data.
GBP
The AUDGBP continuing the trend as it trades higher at 0.5435 at time of writing. The UK released inflation data for September, with the headline data missing out on market estimates and showing a slowdown in growth. UK CPI rose by 3.1% YoY, down from 3.2% in August, Meanwhile, the core inflation gauge (excluding volatile food and energy items) fell to 2.9% YoY last month versus 3.1% registered in August, falling short of the consensus forecast of 3.0%. This is the last piece of data before the BoE’s decision on interest rates next month, and gives more reason to believe the central banks recent commentary and expectations that current elevated global cost pressures will prove transitory.
NZD
The AUDNZD the only pair managing to break the curve as it trades marginally lower, currently trading at 1.0443. New Zealand, among other commodity currencies, also saw the benefit of improved risk sentiment and boosted commodity prices, as it rallied along with the prospects of a relatively rapid vaccine rollout. Later this morning, it was announced that New Zealand had struck a trade deal with the UK promising zero-tariffs for all New Zealand exports and a $970 million economic boost. The deal will entirely remove tariffs on most goods produced in New Zealand, making 63% of current exports tariff-free once a final agreement is settled. Beef and sheep meat exports – one of the most contentious aspects of negotiations – will be tariff-free in 15 years.