Week Ahead: Central Banks and US Election

AUD

The Aussie Dollar begins the week mixed across the board, being dragged over the weekend by sluggish commodity performance on Friday, a mixed Aussie Producer Price Index (PPI) reading and shifts in global risk sentiment ahead of the US Presidential election this week. Regardless, AUD demand has picked up a little over the past hour as trading opens. Asian equities finished Friday mixed, the Nikkei -2.6%, Hang Seng +0.9%, and Shenzhen flat. Locally, the ASX finished down half a percent as healthcare and financials lagged. Gold fell -0.4%, Silver -0.6% and Iron Ore was flat on the day. Australia’s PPI rose by +0.9% q/q in Q3, following the +1.0% gain in the previous quarter, although on an annual basis, the PPI growth slowed to +3.9%, down from +4.8%. This may support the case for RBA interest rate cuts within the next few months. Today, we’ll see two low-tier data prints, being the monthly MI Inflation Gauge and ANZ Job Advertisements. Tomorrow’s RBA Cash Rate decision, Rate Statement and Press Conference are Australia’s main event this week. At their latest meeting in September, RBA officials kept the Cash Rate untouched at 4.35%, noting that underlying inflation remains too high and that projections show it will be some time before it is sustainably within the Bank’s target range. Markets are penciling in only a 20% change of a 25bps reduction by the end of the year, while such a move is fully priced in for May.
 

USD

AUDUSD opens higher at 0.6591 as markets continue to buy up the Greenback ahead of this week’s US Presidential election. The pair initially made gains from 0.6558 to 0.6590 after Friday’s ADP jobs report showed only 12k jobs added in the previous month. This was versus a consensus forecast of +106k that took into account the prospect of weakness from significant strike action during the month and a measurement hit due to hurricane-related disruption. Average Hourly Earnings increased +0.4% (exp. +0.3%) while the Unemployment Rate held steady, as expected, at 4.1%. Nonetheless, the trend in hiring is obviously slowing and with the inflation backdrop looking less threatening, the Federal Reserve has scope to more monetary policy closer to neutral. A positive end to the week on Wall St. saw the Nasdaq close +.8%, the S&P 500 +.7%, and the Dow Jones +.5%. Looking forward, there’s no major US data ahead of the US election announcement this week. While the USD has strengthened lately on the back of upbeat data suggesting there is no need for the Fed to deliver another bold 50bps cut, it’s also due to increasing market bets that Donald Trump will return to the White House. Trump has pledged to cut taxes and impose import tariffs, especially on Chinese goods, policies that are seen as inflationary. Regardless of the outcome, movement across major currencies is widely expected.
 

EUR

AUDEUR kicks off the day higher at 06060 after touching 0.6030 lows in Friday’s early evening. The DAX and CAC gained +0.9% and +0.8% respectively on Friday. It’s a very quiet week ahead in terms of Eurozone data, with no meaningful prints set for release. The key event impacting the Euro will be the US Presidential election which is set to impact USD/EUR demand. This evening, we’ll see Final Manufacturing PMIs for the Euro area as well as the Sentix Investor Confidence report.
 

GBP

AUDGBP starts the week lower than Friday’s open, having drifted from 0.6106 highs on Friday to open at 0.5081. The FTSE ended the session +0.8%. There’s no UK data set for release today. The big event this week is the Bank of England’s interest rate decision, Monetary Policy Summary and Report, on Thursday evening. At the September meeting, policymakers decided to keep the Official Bank Rate unchanged at 5.0%, noting that they will be careful about future cuts. Nonetheless, a few weeks later, BoE Governor Bailey said they may need to ‘be more active’ with rate cuts if the data continued to suggest progress in inflation.
 

NZD

AUDNZD touched 1.0979 lows on Friday before reclaiming some ground to start the day at 1.1001. Tomorrow, we’ll see the RBNZ Financial Stability Report and ANZ Commodity Prices m/m. The key NZ event this week will be their labour force figures on Wednesday morning.