Band of England Leaves Rates Stubbornly Low
AUD
The AUD was a mixed-bag overnight in what has been a busy week for currency markets, a strong performance against the Pound was overshadowed by US Strength. Upbeat market mood had equity markets stronger across the board, Asian equities finished the session overwhelmingly higher, with the CSI 300 up +1.0%. The Nikkei and ASX were up +0.9% and +0.5% respectfully, largely lead by technology and financial stocks. Australian retail sales tumbled in the third quarter as coronavirus lockdowns shut shops in Sydney and Melbourne, though a rebound is likely underway as high rates of vaccination allow the economy to reopen. Figures from the ABS on Thursday showed retail sales fell an inflation-adjusted 4.4% in the Q3, slightly better than market forecasts of a 4.6% decline. Further, the Trade Balance for September showed a surplus of $12.24B lower than the $15B in August. Commodities which have been bouncing around in recent weeks were down, with the all-important Iron Ore price plunging -2.7% putting pressure on the Aussie. The RBA’s Statement on Monetary Policy is due today and will incorporate the much stronger-than-expected Q3 underlying inflation print into their forecasts. Finally, China’s trade data is to be released on Sunday with markets expecting a softer outlook on China’s exports which have been titled to the downside for months.
USD
The AUDUSD took its second major fall of the week as it struggles to hold onto the 0.74 handle, trading at 0.7401. The main theme of the session was resounding Greenback strength, evident from the strong DXY, which tracks the USD’s performance against its peers, advancing half a percent to sit at 94.32. US Treasury yields retreated, with the 10-year note hitting an intraday high of 1.60% to settle near a daily low of 1.509%. US weekly jobless claims printed marginally better than expected with initial claims falling from 283k to 269k to beat estimates of 275k while continuing claims fell from 2.239m to 2.105m to beat estimates of 2.150m. US employment data will then be the highlight of the day ahead. Nonfarm payrolls growth should show a pick up after softness in September. New COVID cases have declined considerably since September’s reference week, a development which could lead to a pick-up in labour force participation and soften the supply constraints that have held back recent figures.
EUR
The AUDEUR also losing out but not as badly, with the pair teetering around the 0.64 level for the last week now. European equity markets ended strongly, rising for a fifth consecutive day with the Eurostoxx and CAC gaining +0.5% each. European data was mixed but really failed to move markets. German factory orders rebounded by +1.3% in September following an -8.8% decline in August. Spanish Services PMI for October was 56.6 beating expectations of 55.8. In Italy, Services PMI printed at 52.4, falling short of an expected 54.5. Eurozone Services PMI was revised down from a preliminary 54.7 to 54.6. Monthly PPI in the Eurozone was 2.7% in September, higher than an expected 2.3%, YoY was 16% against expectations of 15.4%. Tonight will see the release of another basket of data out of Europe though more likely to take direction from any American impetus.
GBP
The AUDGBP was the winner of the majors today climbing up to 0.5480 as the BoE defied market expectations in their Interest Rate decision and Monetary Policy Summary. It was expected with rising inflationary pressures and signals from BoE policymakers that they would raise interest rates, however Policymakers led by governor Andrew Bailey voted to keep the benchmark lending rate at 0.1 per cent, and to maintain their bond buying target. Officials also pushed back against market pricing for a series of hikes to 1 per cent next year, noting that inflationary pressures are still transitory, and the current path would leave inflation below target at the end of their forecast period. The central bank nonetheless said recent economic data reinforce the view that borrowing costs will have to rise in coming months to keep inflation on target. Still, it also noted that major uncertainties remain about the jobs market after the end of the government’s furlough program for those out of work during the pandemic. The Pound was largely sold off on the decision, losing out almost 1% to the USD as well.
NZD
The AUDNZD failing to grab much attention from currency markets as it trades within tight ranges, if not marginally higher at 1.0421 this morning. It’s been a quiet week for trading the Kiwi currency with most direction being taken from abroad, and it’s likely to continue with little on the macro-economic calendar today and next week as well. The other factor holding back New Zealand is the ongoing health crisis as they still face an uphill battle with snap-lockdowns coming-and-going across the nation as vaccination targets of 90% look to be soon achievable.