Mid-Week Volatility on the Menu

AUD

The AUD having mixed results against the majors as Iron Ore prices slump further and giant Chinese Property developer China Evergrande hangs on for dear life. Starting off with equities, the 3 major US indices were down to end the week with the Dow Jones lower by -0.5%, the S&P 500 -0.9%, and the Nasdaq -0.9%. Asian equities were broadly up to close the week off with the Hang Seng and CSI up +1.0% following Thursdays slump, however the ASX was the underperformer and was down -0.76%. It’s been a rough session for commodity currencies as Iron Ore lost out -2.1% (now 47% down from May's high) as China’s demand for Australia’s largest export proves to be a rollercoaster ride. China's second largest property developer, China Evergrande is cash-strapped with over $300 billion in liabilities and struggling to repays its debtors as markets speculate on the likelihood of bankruptcy, with the knock-on effect hurting Iron Ore demand and therefore the AUD as well. It is reported that only a state-funded bailout can rescue the company and that there are other similar development companies in China with similarly perilous debt issues. In what is being touted as "China's Bear Stearns moment" markets are nervously waiting to see if the CCP will allow market forces to naturally find equilibrium or if they will dig deep into their pockets for a rescue package. To the data and it will be a slow start to the week. Tomorrow we’ll see the Minutes from this month's Monetary Policy Meeting, however given Lowe's communications since the meeting, the minutes will be unlikely to give much more insight than we already have. 

USD

The AUDUSD trading lower over the weekend, sitting at 0.7264 this morning which is almost 4-week lows. In late trade on Friday night, the University of Michigan Sentiment Survey for September printed at 71.0 up from 70.3, though it was short of expectations of 72.0. The ongoing prevalence of the Delta strain placing pressure on the health system has dampened the consumer sentiment, lowering the economic forecasts for the third quarter as economic activity slowed down. For the week ahead, Thursday morning's Fed meeting will be watched closely in what will be the main event for the week. Market participants will be watching closely for changes in language which could signal a shift in the Fed's tapering timeline, or indeed the Dot Plot. Will the Fed's recent dovish optimism continue or will the hawks take over?

EUR

The AUDEUR trading within tight ranges to start the week at a rate of 0.6193 this morning. Friday’s Eurozone final CPI prints for August came in at +3.0%, no real surprises there, in-line with expectations. The ECB’s council member Kazaks was optimistic but cautious as he said that if Covid does not inflict any further shocks, there is some upside for the inflation outlook over the medium term, however, he doesn’t see inflation reaching the 2% goal over the medium term. The region’s stabilizing economic recovery, persistent supply bottlenecks and rising expectations all point to possible faster-than-forecast price gains. Just last week the ECB revised up its inflation projections through 2023, citing improvements in the outlook as one reason to trim pandemic bond buying. This week will see a litany of European Manufacturing and Service PMIs, with powerhouse Germany’s set to be released on Thursday afternoon.

GBP

The AUDGBP resuming its position at a similar level seen last week after a briefly lived ascension, trading at 0.5286 this morning. In data from Friday afternoon, UK retail sales were down in August by -0.9%, the fourth consecutive month of negative movement, missing expectations of a 0.5% rise. The report also showed that 6.5% of retailers could not access the inputs they needed from within the UK, highlighting the supply chain problem. In the latest BoE/Kantar quarterly survey, inflation expectations for the year ahead rose to 2.7% in August from 2.4% previously. All eyes will be on the BoE Monetary Policy Meetings this week, with interesting comments made by Governor Bailey recently, who stated that members in August were split 4-4 as to whether the minimum necessary criteria for raising rates had been reached. Following this comment, headline inflation has risen to 3.2%, hitting the highest level since 2012, while the all-important jobs market has gone from strength to strength since last meeting. Worth keeping an eye out on Thursday night.

NZD

The AUDNZD was the only major to move in a positive trajectory, sitting at 1.0329 at time of writing. Our Kiwi counterparts feeling the pain of weaker commodities more than the AUD. It’s a quiet week ahead in terms of macro-economic data, with just a handful of articles sporadically released throughout the week.