US Data Confirms Inflationary Pressures Abound
AUD
The AUD lost some of its recently acquired gains against most majors overnight as a dovish RBA Governor Phillip Lowe and US economic data (see more in USD section) sent the Aussie dollar in a downward spiral, particularly against the USD. Minutes of the latest RBA meeting reconfirmed the central bank’s outlook that the rate hike is off the table before 2024. RBA Governor Lowe backed the same ideal while saying, “The latest data do not warrant a rate hike next year,” adding that it is still plausible that the first increase will be not before 2024. These updates cooled down rate hike expectations that soared especially after the jump in the Australia Q3 inflation figures. Asian Equities were generally lower with the ASX worst off losing -0.7%, Shanghai Comp -0.3%, thought the Nikkei was up just +0.1%. The ASX was primarily impacted by weaker performance in the mining industry as commodity prices were lower as well. Iron Ore was weaker, down -0.8%, Gold losing -0.7%, and Copper was feeling the pain of -1.2% losses. Locally today will see the release of Wage Price Index in Q3, with an expected improvement 0.6% versus 0.4% prior, though will not go far in overturning the sour tone from the RBA.
USD
The AUDUSD is trading back at the levels seen at the end of last week after losing almost 1% overnight, trading at 0.7303 this morning. Expectations of a Federal Reserve rate hike jumped overnight, following an eight-month high print of the US Retail Sales for October. The strong set of data was headlined by Retail Sales rising by +1.7% in October, beating expectations of +1.4% and above the +0.8% gain in September. The details show gasoline station sales rose 3.9% due to higher prices while motor vehicles and parts rose 1.8%. This was actually on the weak side of expectations given the 6% jump in unit volume sales, exemplifying the inflationary pressures rampant across markets at the moment. Released a little later, October Industrial Production rose by +1.6% to beat estimates of +0.9% while Capacity Utilisation was 76.4% against expectations of 75.9%. It’s worth noting that hopes of further stimulus from China and the US add to the risk-on mood, giving strength to Wall Street as Nasdaq put on +0.8%, and the S&P gained +0.6%. Moving forward will see a handful of FOMC speakers add commentary early tomorrow morning, though talks between Biden and Xi Jinping will take the headline for the rest of the week.
EUR
The AUDEUR not as worse off but still losing marginally to trade at 0.6448 at time of writing. The EU published its second estimate of its Q3 Gross Domestic Product, which was confirmed at 2.2% QoQ. Employment change in the same quarter was up +0.9%, beating expectations of +0.6%. Germany's energy regulator has suspended the approval process for a major new pipeline bringing Russian gas into Europe, throwing up a new roadblock to the project and driving up regional gas prices, EU gas prices were quickly 12% higher. With a relatively bare domestic calendar and no change in tone expected from scheduled European Central Bank speakers to change the outlook on the EUR, it could be quite boring until we see a larger dump of data on Tuesday next week.
GBP
The AUDGBP also tumbled losing over 1% overnight off the back of some strong data out of the UK, currently trading at 0.5438. The UK published jobs figures for September, which showed that the Unemployment rate fell to 4.3% in September against 4.4% expected. Those claiming unemployment benefits decreased by 14.9K MoM, while the ILO Unemployment rate for the three months to September contracted by more than anticipated. Average Earnings in the same period were up 4.9% excluding bonuses, and 5.8% including bonuses. Tonight will see the release of the all-important Inflation data from the UK. CPI released this evening is expected to hotter than ever with many forecasters predicting a +3.9% read for October, which would all but cement a rate hike in December. Worth keeping an eye on at 6pm tonight.
NZD
The AUDNZD the only pair that managed to fend off the AUD bears, taking minute gains to trade at 1.0445 this morning. With little major data out of New Zealand to capture the attention of currency markets, traders will have a keen eye on commodity prices as well as inflationary pressures in Europe and North America.