RBA In Action This Afternoon
AUD
The AUD has managed to fend off downbeat market sentiment and trade higher than most of the majors. US Equity Indices wore the full brunt of the poor sentiment with the Dow Jones, the S&P 500, and the Nasdaq recording losses of -1.1%, 1.5%, and -2.4% respectively, further deteriorating the recent correlation between strong US Equities to AUD strength. Asian equities were mixed on Monday with the Nikkei and Hang Seng down -1.1% and -2.6% respectively, after trading of Evergrande shares was suspended in Hong Kong, The ASX outperformed and was up +1.3%, driven by gains from the finance and travel sectors as more dates are released for reopening Australia in coming months. What could have helped the local dollar were commodities, with Iron Ore finishing up +6.2% even in the face of a trade-tango with China. Chinese markets are closed until Thursday for the Golden Week Holiday. It was an empty data docket yesterday domestically with some states having a public holiday, though that’s set to change with The Reserve Bank of Australia meeting later today. The RBA’s policy stance won’t change after announcing an extension and tapering of its Bond Purchase Program last month. The key takeaway will instead be the Board discussing the Financial Stability Review (FSR) to be released on Friday.
USD
The AUD is trading higher against the Greenback even with some decent data out of the US, currently trading at 0.7289. The US economic docket yesterday featured the Factory Orders for August, which rose by +1.2% MoM to beat expectations of a +1.0% gain, with the core measure up +0.5% compared to expectations of +0.4%. Despite the upbeat data, the DXY which tracks the Greenback's weighted performance against six other currencies, is down 0.30%, sitting at 93.79. The pressure on the USD more likely coming from increasing expectations about the Fed’s Bond taper timeline despite no new insight to feed currency markets. What will be weighing on the minds of markets will be the US debt limit debate, with Senate Minority Leader McConnell saying that the Republicans would not co-operate to get the limit increased ahead of an expected default date of October 18. President Biden later calling on the Republicans to get out of the way if they would not help what should be a bi-partisan undertaking. Looking ahead and tonight we’ll see the US’ Services PMI, with it expected to report an expansion in the US service sector's economic activity for the 16th month in a row following August's print of 61.7. Nevertheless, investors are likely to pay more attention to the underlying details of the report to gauge inflationary pressures.
EUR
The AUDEUR also trading higher to sit at the highest level since early September, trading at 0.6272 this morning. European Equity markets also feeling the hurt as they drifted lower to close in the red across the board with the DAX the hardest hit as it shed -0.8% whilst the CAC and MIB lost -0.6% with more limited losses elsewhere. In European data, currency markets largely ignored Jobs data from Spain as Unemployment fell by 76.1k In September after having fallen by 82.6k in August. Eurozone’s Sentix Investors’ Confidence Index deteriorated to 16.9 in October, from 19.6 in the previous month, beyond market expectations of a softer decline. The decline brings the index tumbling down to six-month lows and marks the third straight monthly decline, with concerns noted by Sentix Managing Director Patrick Hussy said: "The economic recovery process continues to falter. The continuing loss of momentum thus does not signal any autumn revival."
GBP
The AUDGBP trading even into the morning even with the ongoing energy crisis in the UK, trading at 0.5354 at time of writing. No data out of the UK to start the week off but Prime Minister Boris Johnson has already said that he does not intend to ease immigration rules to alleviate the fuel shortages. The exit of some EU nationals from the hauling sector has caused petrol stations to run dry and people to queue up, demonstrating some of the easily identifiable downfalls of Brexit. The UK will join the EU in releasing their Final Service PMI’s but little other data of note until later in the week.
NZD
The AUDNZD trading within tight ranges as it’s a sleepy start to the week for our cross-Tasman siblings, currently trading at 1.0466. With little data to provide direction, health conditions take the front stage as the NZ government acknowledged what most other countries did long ago: It can no longer target covid zero. Prime Minister Jacinda Adern announced a cautious plan to ease lockdown restrictions in Auckland, despite an outbreak there that continues to simmer. Since early in the pandemic, New Zealand had pursued an unusual zero-tolerance approach to the virus through strict lockdowns and aggressive contact tracing.