Fading US Inflation Gives Green Light to Fed Cut
AUD
The Aussie inches lower across the board as markets digest weaker local retail sales and shaky manufacturing figures out of China over the weekend. Friday showed Australian Retail Sales for July flat at 0.0% against forecasts of +0.3%, despite Stage 3 tax cuts having begun in July. Economists predict the tax cuts to begin flowing into consumer spending (and thus higher retail sales) moving forward as Australians have only just received one pay with the benefits of those tax cuts so far. To China, factory activity contracted for a fourth straight month in August with the Manufacturing PMI at 49.1 against an expected 49.5, also being in contraction for all but 3 months since April 2023. Their Non-Manufacturing PMI came in barely in expansionary territory at 50.3 against an expected 50.1. The indices still show signs of remaining on a shaky footing for this quarter. Asian equities ended the week stronger across the board, Nikkei +0.7%, Hang Seng +1.1%, and Shenzhen +1.3%. Locally the ASX closed +0.6% with gains driven by industrials and energy. Commodity prices didn’t offer strength to the Aussie as with Crude Oil -3.0%, Natural Gas +2.1%, Gold -0.7%, Silver -1.9% and Iron Ore -0.3%. Today we have light Aussie construction and labour figures out at 11:30am, notably the Building Approvals m/m and ANZ Job Advertisements m/m. China also has Caixin Manufacturing PMI at 11:45am to solidify the picture of their factory activity.
USD
AUDUSD opens lower at 0.6771 despite markets being confident the US Fed will begin easing monetary policy from mid-September, helped by the US Core PCE Price Index m/m printing on-expectations at +0.2% on Friday evening. US inflation is on track to hit the 2% target early next year, with Friday's print giving the green light to a September rate cut. On the other hand, consumer spending remains strong in America which could make the Fed reluctant to move aggressively. Wall Street reacted favourably with the Dow Jones +0.6%, S&P +1.0% and NASDAQ +1.1%. Global markets are closely watching the US economy this week as we approach the next Fed meeting, especially focused on US jobs data (Non-Farm Payrolls) on Friday evening to provide fresh information on the apparent slowdown in America's labour market. A soft report could tip the odds in favour of a 50bps Fed cut this month & catalyse another major AUDUSD advancement. Today is a US Bank Holiday due to their Labour Day.
EUR
AUDEUR opens relatively flat at 0.6129 with no major Eurozone data events over the weekend. On Friday night we had Eurozone CPI Flash Estimate y/y land on-expectations at +2.2%, considerably lower than the previous +2.6%, clearing the way for a potential European Central Bank rate cut in September. Euro equities finished the week flat with DAX +0.0% and CAC -0.1%. The earlier part of this week will be a flurry of PMI’s, with Manufacturing and Services PMI’s out of all the major European economies. Starting this evening we have German, French and Italian Manufacturing PMI’s, looking to show a lethargic recovery on route back to expansionary territory, and will be encapsulated by the overall Eurozone Final Manufacturing PMI expected to remain unchanged at 45.6.
GBP
AUDGBP opens a little lower at 0.5152, with little volatility over the weekend as markets had a non-reaction to the UK figures from Friday afternoon. On Friday, UK lending and housing prices figures showed housing falling slightly amidst slightly higher lending towards mortgage debt. There was little reaction to these figures shown in the Nationwide HPI m/m at -0.2% against a forecast of 0.2%, and Net Lending to Individuals m/m increasing by 600M at 4.0B. UK equities also reacted meekly, with the FTSE flat at +0.0%. This week should have more significant data, starting with the Final Manufacturing PMI, which unlike the rest of Europe (who are all in contraction), is expected to remain in expansionary territory at 52.5.
NZD
AUDNZD opens lower at 1.0836 after a surprise +43.2% increase in new home approvals in New Zealand on Friday, following the overall economic uptrend since the RBNZ rate cut in August (which contributed to a significant increase in their Business Confidence at the end of August - the strongest reading in over a decade). Tomorrow morning we have the NZ Overseas Trade Index q/q, and the day after, GDT Price Index and ANZ Commodity Prices m/m.