AUD Drifts Higher on Improved Risk Sentiment

AUD

The AUD pushed higher against the majors even after a subdued start to the week. Some renewed market optimism and easing concerns from China assisted risk currencies, as Asian equities were largely positive at the close, with the CSI up +0.6%, the ASX up +0.6%, while the Nikkei underperformed ending the day flat. The People’s Bank of China (PBOC) indirectly hinted at supporting China Evergrande, promising to protect consumers exposed to the property market. Closer to home, New South Wales Premier Gladys Berejiklian brought closer the light at the end of the tunnel and introduced the roadmap for Australia’s most populous state, with easing lockdown restrictions to begin from October 11, while the final stage of reopening is scheduled for 1st Dec. The last week of the month is proving to be a light one on the data docket with Australian Retail Sales for August the only release of note.  The data is expected to show another sharp decline due to the effect of lockdowns with Retail sales falling 2.7% m/m in July, and we expect a similar decline to have occurred in August.

USD

The AUDUSD trading higher this morning, sitting at 0.7286 at the moment. The yield on the benchmark 10-year U.S. Treasury note topped 1.5% for the first time since June, continuing its upward momentum from last week as the Federal Reserve moves closer to easing off its pandemic-era policies. In data out of the US, Durable Goods Orders, (which measures the cost of orders received by manufacturers for durable goods planned to last for three years or more, such as motor vehicles and appliances), printed higher for August at +1.8%, up from a positively revised +0.5% and better than expectations of +0.7%. The excluding transport measure (taking auto sales out of the numbers which can skew results) however printed at +0.2%, down from +0.5% and below expectations of +0.5%. Fed Reserve members Williams and Evans spoke last night and were broadly in line with Chair Powell in saying that inflation expectations were largely stable, and although progress had been made, maximum employment was still some time away and tapering of asset purchases would soon be appropriate. We’ll look to hear if it’s the same tune from Powell and Bostic tonight.

EUR

The AUDEUR trading at 2-week highs to trade at 0.6228 this morning. The EUR could be feeling some weakness off the back of some uncertainty as Europe’s largest economy, Germany, works through what was a very close federal election. Although the polls have closed and Germany's centre-left Social Democrats (SPD) have claimed victory, the country is no closer to knowing who will be its next leader with the possibility of it taking months to confirm the new coalition government. No data from Europe on the docket tonight, however ECB President Lagarde will hit the wires.

GBP

The AUDGBP is trading even this morning despite some dovish commentary from BoE Governor Bailey overnight, currently trading at 0.5313. Governor Bailey has warned Britain’s economic recovery from Covid-19 is slowing amid supply chain disruption and staff shortages. Speaking during the Society of Professional Economists Annual Dinner, he said “Monetary policy response, if needed to make one, to the inflation pressure should involve interest rates and not QE.” Adding “The rate of recovery has slowed over recent months, and that slowing is continuing. Relative to the fourth quarter of 2019, on the latest data to July, the level of GDP was 3.5% lower.” We’ll look to see if the same messages are repeated when he speaks again on Thursday. Fuel shortages are also being reported around the UK, with a lack of truck drivers slowing distribution of the UK's ample fuel reserves to the bowsers. No data tonight.

NZD

The AUDNZD travelling northbound to trade at 1.0391 at time of writing which is almost 3-week highs. New Zealand’s central bank dampened expectations of a big interest rate hike when it meets next month, with comments yesterday that indicated it may take a more cautious approach. The Reserve Bank of New Zealand (RBNZ) Assistant Governor Christian Hawkesby said in a speech that amid uncertainty, "when the risks are evenly balanced, central banks globally tend to follow a smoothed path and keep their policy rate unchanged or move in 25 basis point increments". It’s a light week for New Zealand data, Thursday's Business Confidence the only data of note.