Pound Sinks to Historic Lows, Aussie Varied
AUD
The Australian dollar had varied outcomes and a mixed performance over the weekend, though general risk-off sentiment still weighs on the Aussie. Asian equities closed Friday’s session in the red, with the Nikkei -0.6% and Hang Seng -1.2%. The ASX was the worst performer, finishing down -1.9% largely in a reaction to rate hikes across Europe and Asia on Thursday. Commodities followed the downward trend as Gold, Silver and Iron Ore were all down over -1.5%. Friday saw the release of Flash Manufacturing and Services PMIs which signaled an uptick in output growth across Australia’s private sector economy in September, but wasn’t enough to persuade markets. After a busy week of central bank meetings and data, the macroeconomic calendar looks to take a breather in the week ahead with little local data of note.
USD
AUD/USD is down sitting at its lowest levels since May 2020 of 0.6532. Last week’s risk-off theme continued into the weekend as US Federal Reserve’s aggressive plan to stamp out inflation that dampened the outlook for global economic growth and pressured commodities and other risk assets. Part of the weekend’s losses could be attributed to carry-on strength that the Greenback found against the British Pound (see more on this in GBP section). The NASDAQ closing -1.8%, the S&P 500 -1.7% and the Dow Jones -1.6%. Global yields pushed higher while oil fell -5.2% to $79.1 a barrel. Positive data from the US showed that business activity in the US manufacturing sector expanded at a stronger pace in early September than in August with the Manufacturing PMI rising to 51.8 from 51.5. This reading came in better than the market expectation of 51.5. Furthermore, the Services PMI rose sharply to 49.2 from 43.7 and the Composite PMI improved to 49.3 from 44.6. Looking forward, more chatter from Fed Reserve Speakers this week as well Consumer Confidence and Core PCE data coming out on Wednesday and Friday.
EUR
AUD/EUR is slightly down, losing 20 bps since Friday morning to sit at 0.6730. European equities opened in the red with the Eurostoxx 50, losing -0.4%. Friday saw the release of September PMI data for countries in Euro region, with mixed outcomes unable to provide a convincing statement. French Services was 53 (50.5 expected), with Manufacturing at 47.8 (49.8 expected). In Germany, Manufacturing was in line with expectations at 48.3, while Services printed at 45.4 (47.2 expected). Euro-area Manufacturing printed at 48.5, missing expectations of 48.8, while Services was 48.9 (48.2 expected). ECB’s Kazak hit the wires saying the choice for the October hike is 50 or 75bps. The early PMI readings indicate an economic contraction of 0.1% in the third quarter. Germany, highly dependent on Russian gas, is facing the toughest conditions, with the economy deteriorating at a rate not seen outside of the pandemic since the global financial crisis. The coming week will have a string of lower tier coming out of the Eurozone however we do have several ECB talks throughout the week.
GBP
AUD/GBP took leaps and bounds to reach 5-year highs and climb to above 0.60, whilst the Pound sunk to new lows amongst its peers, now trading at 0.6040. The Pound flopped after the government announced several tax cuts, in an attempt to boost economic growth. The plan includes the cancellation of a planned rise in corporation tax to 25%, keeping it at 19% and a reversal in the recent 1.25% rise in National Insurance contributions. The government estimates the tax cuts will total £45 billion by 2026-27, but markets worry that public debt levels will soar, at a time the economy is already under big downward pressure. Gilt yields surged on concerns about the extra borrowing needed to fund the huge tax cuts presented. UK 5-year yields jumped 50bps, set for the biggest rise on record. GBP/USD traded down to 1.0792, the lowest level since 1985. Traders have since priced in a 50% chance of a 100bp hike by the BOE in November. In other data from the UK, the Composite PMI dropped to 48.4, a 20-month low, and down from a previous 49.6. Looking ahead into the week we have a string of lower tier data that most likely will not have a significant impact on the effect of the GBP.
NZD
AUDNZD has remained stagnant and ranging sitting at a current level of 1.136, with no significant news coming out New Zealand as the Kiwis enjoy a long a weekend to start the week. The quiet start looks to continue into the remainder of the week as well with no data penciled in for release.