Persistent Chinese Deflation Weighs on AUD
AUD
The Aussie dollar gained steady ground throughout Friday's session, initially reversing the majority of the week's losses before falling off in the late hours to open mixed against majors this morning. Asian equities were mixed to wrap up the week with the Hang Seng flat and the ASX 200 up +0.3%. Persistent Chinese deflation hasn't helped the Aussie dollar either, with consumer prices extending their decline in November (CPI -0.5% y/y) while factory-gate deflation deepened (PPI -3.0% y/y) as weakened demand casts doubt over the sustainability of China's economic recovery. Markets are awaiting more government stimulus at the annual agenda-setting Central Economic Work Conference, due to be held around mid-December, as China continues to grapple with an ailing housing market and mounting local government debt. The Aussie data calendar turns light after last week's RBA meeting (data-dependent hold at 4.35% after a 25 bps hike in November). A few low-tier surveys will be reported this week, although the Aussie dollar will likely be at the mercy of broader developments in capital markets. Tomorrow morning, RBA Governor Bullock is due to speak at the AusPayNet Summit in Sydney.
USD
AUDUSD reclaimed the majority of last week’s losses in Friday’s session, peaking at 0.6621 in the evening before collapsing in the aftermath of a strong US jobs report, opening today at 0.6572. Wall St. wrapped up a strong week with another positive session on Friday, with the S&P 500 closing +0.5% and both the Dow and Nasdaq +0.4%. US employers added 199k jobs in November, helping to push the jobless rate to 3.7% - the lowest level since July. On top of this, the US jobs report showed average hourly pay ticking up 0.4% in October, adding to the +4.0% since November 2022, with economists declaring this figure is much too strong for the Fed to declare its job is done. This shows the strength of the US economy continues to defy expectations (GDP was +5.2% in the most recent quarter - well above pre-pandemic levels) and while job growth is falling compared to last year, it is holding up rather well in the face of a tough economic picture. Nothing on the US data calendar today ahead of the CPI print in Wednesday’s early hours. Expectations are that the yearly figure will be +3.1%, down from the previous +3.2%, potentially adding weight to market pricing of interest rate cuts next year - although persistent labour market strength could detract from this narrative. We’ll also see PPI data on Thursday morning ahead of the Federal Reserve’s interest rate decision, FOMC Statement and Press Conference. Expectations are that the Fed will hold at 5.5%.
EUR
AUDEUR maintained the 0.61 handle throughout Friday’s session, reaching 0.6138 highs before falling slightly to open at 0.6112. European equities were strong with the DAX +0.8% and CAC +1.3%. A relatively quiet few days ahead in terms of Eurozone data, with only some low-tier releases, ahead of a mammoth session on Friday including the ECB Main Refinancing Rate announcement, Policy Statement and Press Conference, as well as Flash PMIs for Germany, France & the Eurozone as a whole. One of the hot topics at the moment is that markets are currently pricing in, for the next year, more interest rate cuts from the ECB than from the Federal Reserve (as well as 2x as many cuts from the ECB than the Bank of England). ECB President Lagarde’s commentary on Friday may seek to push back against aggressive market pricing of 125bps worth of ECB cuts, beginning in March/April.
GBP
AUDGBP saw 0.5261 highs on Friday evening before retracing slightly to open at 0.6236. The FTSE gained +0.5% in Friday's session. A busy week ahead for the Pound, with the UK’s Claimant Count Change, GDP, PMIs and the Bank of England’s interest rate decision all set to be released. Starting us off will be the Claimant Count Change and Average Hourly Earnings m/m tomorrow evening.
NZD
AUDNZD saw steady gains in Friday’s session to kick off the week at 1.0725. Noting of the Kiwi data calendar today, while tomorrow will bring Visitor Arrivals m/m ahead of Wednesday’s Current Account and Food Price Index (FPI) m/m. The major NZ event this week will be their quarterly GDP figure, expected to grow +0.2% after the previous quarter’s stronger-than-expected +0.9%.