- The Australian dollar had a wild session on Thursday, recovering from earlier declines to close sharply higher.
- A decline in US bond yields, helped in part by a weaker-than-expected US inflation report for September, helped to offset continued steep declines in European and US stocks.
- The economic calendar is busy on Friday, although it’s questionable as to how much influence it may have on broader market movements.
The Australian dollar resembled a rollercoaster ride on Thursday, recovering from an early plunge to close the session sharply higher.
Here’s the scoreboard at 8am in Sydney.
AUD/USD 0.7123 , 0.0063 , 0.89%
AUD/JPY 79.88 , 0.62 , 0.78%
AUD/CNH 4.8986 , 0.0105 , 0.21%
AUD/EUR 0.6143 , 0.0016 , 0.26%
AUD/GBP 0.5381 , 0.0031 , 0.58%
AUD/NZD 1.0910 , -0.0034 , -0.31%
AUD/CAD 0.9283 , 0.0079 , 0.86%
After testing multi-year lows hit earlier in the week late on Wednesday’s trading session, the AUD/USD spent the Asian session slowly grinding higher, ignoring the carnage in stocks across the broader Asian region.
Sean Callow, Senior Currency Strategist at Westpac Bank, said there was a good reason why currency traders paid scant regard to the plunge in stocks: they’ve seen similar tantrums from stock investors before.
“[Currency traders] don’t yet see the equity moves as a game-changer,” Callow said.
“The experience of Q1 2018 is instructive — the February US equity turbulence was genuinely large but the Fed brushed aside any suggestions that it might be more cautious on raising rates, proceeding with a hike in March.
“If anything, the Fed sounds even more confident about the resilience of the US economy than it did in Q1. So the Fed will probably regard the equity pullback as immaterial to the growth and inflation outlook.”
In essence, the plunge in stocks is unlikely to impact the Fed’s view on the outlook for rate hikes, especially if short in nature. And the Aussie has already fallen 13% against the US dollar since the end of January.
After pushing back towards the .7100 level in European trade, the AUD/USD spiked above this figure as US markets opened, helped by a softer-than-expected US inflation print for September that maintained the downside pressure on US government bond yields seen earlier in the session on safe-haven flows.
Both headline and core consumer price inflation (CPI) rose by 0.1% over the month, below the 0.2% increase expected.
Despite the undershoot, Kansas City Fed President Esther George — a non-voter on the FOMC this year — continued to make the case for a continuation of gradual rate hikes in the period ahead.
George said tight labour market conditions “could push inflation somewhat higher over the next couple of years”, adding that “by nearly every measure, the US economy is performing well”
“[The] outlook will likely require further gradual increases in the FOMC’s target interest rate,” George said.
The hawkish view came despite continue attacks on the Fed by US President Donald Trump who described recent rate hikes as “crazy,” “loco,” “ridiculous,” “too aggressive,” and “a big mistake” in various appearances during the session.
At the margin, Trump’s words may have contributed to US dollar weakness seen on Thursday, allowing the AUD/USD to hold above the .7100 level despite a continued slide in European and US stocks.
Turning to the session ahead, the movements in the Aussie are likely to be driven by sentiment, gyrations in US bond yields as well as the performance of Chinese markets, especially the Chinese yuan.
On the economic calendar, Australia will receive housing finance data for August at 11.30am AEDT. Most housing-related data has been weak of late, so any reasonable result will likely come as a surprise to investors.
Arriving at the same time as that report, the RBA will also release its semi-annual financial stability report. While it will be full of interesting observations, whether it will have the power to move the Aussie is debatable.
The other main release from Asia comes from China with the release of trade data for September. Exports and imports are expected to have increased by 8.9% and 15% respectively over the past year, leaving the trade balance at $US19.4 billion. Monetary growth figures for September could also arrive at any point in the coming days, including today.
Highlights later in the session include German CPI, Eurozone industrial production along with trade prices and University of Michigan consumer confidence survey from the United States.
On the central bank front, Lautenschläger from the ECB and Evans and Bostic from the US Fed will also be in action.
The IMF and G20 will also meet.
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