AUD Well Supported Ahead of a Busy Week

AUD

The AUD was mixed over the weekend, up nicely against EUR and GBP but slightly off against the Big Dollar. Strong retail sales numbers for September surprised forecasters and helped the AUD on Friday, rising +1.3% vs consensus expectations of a +0.3% gain, the first positive month of growth after 6 months of decline. Annually, sales are up +1.3% on the year, albeit flattered by base effects – Sep 2020 being the worst of Vic’s ‘second wave’ lockdown. Recall that the majority of COVID restrictions were largely eased in Nov, so the retail sector should expect a significant spike and bolster next month's release. Asian equities were mixed on the close with the CSI 300 the strongest performer, up +0.9%. the ASX fell -1.4% to finish the week, with real estate and financial stocks leading the decline on Friday. Commodities were on the backfoot as Iron Ore was down -1.0%, Gold down -0.9%, and Copper losing -1.5% as well. Chinese data was also poor which couldn’t further help the AUD, with PMI’s for China's manufacturing sector unexpectedly dropping to 49.2 in October from 49.6 booked in September. Today we’ll see some inflationary data from the Melbourne Institute, though the data is unlikely to influence tomorrow's RBA meeting which will be of keen attention for the first time in a few months.

USD

The AUDUSD retreated off its recent highs but still residing in the 0.75s, trading at 0.7517 this morning. The Greenback shook off the strong Aussie Retail Sales data when the US released its Core PCE Price Index for September, the notoriety sired from being the Fed's preferred gauge for inflation. Annual inflation rose at its fastest pace in more than 30 years during September despite a decline in personal income. Stripping out food and energy costs, inflation rose +0.2% for the month, in line with the Dow Jones estimate, and 3.6% for the 12-month period, unchanged from August but good for the highest since May 1991. US Equities finished off the month in the black with the three major indices posting near 20% YTD gains, the Dow Jones, S&P 500, and the Nasdaq all gaining around +0.2%. Tonight we’ll see the US post their ISM Manufacturing PMIs for some pre-show entertainment before the main event of the week featuring the Federal Reserve and the FOMC, with markets expecting that the Fed will announce its gradual reduction in its bond purchases.
 

EUR

The AUDEUR has broken through the 0.65 barrier for the first time since late April this year, sitting at 0.6503 at time of writing. Euro weakness was largely on the cards with weaker than expected data across the board. The German economy expanded 1.8% in the third quarter of 2021 when compared to the expectations of 2.2% and 1.6% booked in Q2, the preliminary report showed on Friday. The European Central Bank’s (ECB) Survey of Professional Forecasters released on Friday showed that the respondents predict higher in the coming years while expecting the inflation to come in just below the central bank’s 2% target in 2022. European Equity markets ended the day with mixed results with +0.4% type gains on the CAC and IBEX, which were largely offset by modest losses elsewhere. The Euro was under more pressure when ECB President Christine Lagarde had dovish remarks downplaying the need to hike interest rates. We’ll see a follow up to the European data dump with some German Retail Sales with Bank Holidays across other parts of Europe.

GBP

The AUDGBP continuing the strong growth as it approaches the 0.55 mark, trading at 0.5493 this morning. All eyes will be fixated on the BoE on Thursday, when it will hold its monetary policy meeting, with analysts torn on whether to expect a 15bp rate hike. Several BOE officials, including the leadership, have been particularly hawkish in their rhetoric, but at the same time, still seem to believe that the price pressures are mostly related to the re-opening and supply-side disruptions. The BOE is still engaged in QE, and although Governor Bailey has said that the MPC is prepared to raise rates before QE is finished.

NZD

The AUDNZD is weaker trading at 1.0486 this morning. The Kiwi pair saw some benefit after an announced NZ will begin easing Covid restrictions that have been in place on its national borders since March 2020. Chris Hipkins, minister in charge of New Zealand's COVID-19 response, said that from November, travellers from Pacific countries such as Samoa, Tonga and Vanuatu will no longer need to quarantine on arrival. The main data piece for the week will be Wednesday morning's employment data where the Unemployment Rate is expected to drop below 4%.