Australia
Healthy September jobs data yesterday showed that the unemployment rate hit a seven-year low, dropping to 5% in September on the back of the continuing jobs boom in Victoria and NSW. Employment increased by only 5600 jobs in seasonally adjusted terms, but the 0.3% decrease in the number of people looking for jobs was also a factor in the overall unemployment rate falling from 5.3 % in August. The participation rate fell from 65.7% to 65.4 %, the lowest level in 11 months. This stronger than expected result, would have come as a surprise to the RBA who had forecast an unemployment rate of 5.25 % to June 2020, reinforcing the view that the next cash rate move from the RBA is likely to be up not down. The Aussie dollar firmed after these figures, rising to 0.7132 against the Greenback. In the prevailing risk-off tone the AUD has struggled to hold onto yesterday’s gains and this morning is trading down around 0.7095. Given that the Australian equity market is trading down we look for the AUD to remain under selling pressure especially if this afternoon’s Chinese GDP, retail sales and Industrial production data disappoints. Next support level is 0.7085 but look for test of 0.7000 over next week.
New Zealand
Little in the way of economic data to drive the NZ dollar in the back end of the week.
Migration data released this morning, showed that net monthly migration slowed to 4,640 in September, the lowest monthly net inflow since 2014. That translated to annual net inflow of people into the country falling to 62,700 – the lowest level since October 2015. Expectations are that migration will continue to ease back over the next few years, pulling population growth down in the process. This reinforces our forecasts for a period of soft demand growth over the coming years.
The NZ dollar has held up reasonably well over the week in the face of a firmer USD, making a high of 0.6598 on Wednesday, but has now drifted back to the 0.6530 level against the Greenback and will remain under pressure if the current risk-off sentiment prevails, another test of the 0.6500 support level looks likely next week.
United States
Risk took a backseat overnight as US equity markets slid lower and US Treasuries were higher as investors sought safe-haven assets. US stock markets had the biggest fall since last week’s rout as investor worries heightened over the U.S.-China trade war’s impact on economic growth, the Italian debt crisis and rising interest rates. High-flying technology shares again led the sell-off, while defensive sectors like utilities and real estate fared better. Mixed earnings, with disappointments from key industrial and tech names, added to investor anxiety. The US dollar strengthened against virtually all of its trading partners as the risk-off tone prevailed and the US Fed confirmed that gradual rate hikes remained appropriate. Later today we will see third-quarter GDP for China, in addition to last month’s retail sales and factory output.
We continue to favour the USD consolidating gains and moving higher into next week as the risk-off tone remains and concerns hover over the Italian and Spanish budget deficits, knocking confidence in the EUR.
United Kingdom
UK data releases continue to be overridden by Brexit headlines. Overnight Sterling plunged against all of its major trading rivals after a crucial Brexit summit ended with UK’s PM May offering nothing new and EU leaders cancelling plans for a special summit next November. Negotiations however, continue and EU leaders are willing to reconsider a summit next month, should a breakthrough be reached. Adding to the GBP’s woes, UK Retail Sales figures were much worse-than-expected, with the core reading down in September 0.8% from August, and up 3.2% from a year earlier, the latter, missing the market’s forecast of 3.7%. August readings were revised higher, but market players remained focused on Brexit jitters. Look for the GBP to remain under pressure, currently trading around 1.3018 against the USD a break below support at 1.3010 would target 1.2980 then 1.2945. The downside is favoured.
Europe
The Eurozone continues to kick the can down the road on issues around budgets for its member countries. The European Commission has just sent a letter to the Italian Government requesting clarification of its contentious budget proposals, citing several issues of “serious concern” and “significant deviation” from EU budget rules. A similar letter has been sent by EC to the Spanish Government over its budget. The EUR is now around 1.1450 after making a second attempt to break above 1.1520 overnight on comments from ECB’s Draghi, who repeated his optimistic outlook of the EU economy, but sellers pushed the price back lower. Any hope that the ECB is any closer to normalising interest rates back at higher levels remains unlikely and with continued political problems for Germany, we look for further downside test for the European unit to the 1.1400 support level early next week.
Japan
With risk-off tone evident in the market, investors sought the JPY ‘s safe haven status which saw the USD weaken against the JPY to 111.93 overnight. Yesterday Japan released the September Trade Balance, which posted a trade surplus of ¥139.6B, largely surpassing an expected deficit, and the previous reading of ¥-438.4B. Imports in the same month increased by 7.0%, while exports were down 1.2%, both missing the market’s expectations. Later today will see the release the National September inflation data. Overall the outlook for further JPY appreciation is positive given Japan’s large current account surplus, its net-creditor status and signals from the BoJ that monetary policy stimulus will be removed in 2019. Interestingly, there have also been reports of labour shortages, which suggest that higher wage inflation may be just around the corner. Currently back around 112.20, look for the USD/JPY to head into the 111.50/65 support level over the next week.
Canada
Canadian CPI data is due out later tonight which is expected to show a rise in headline inflation to 2.9% over the year in September while core inflation is set to rise by 1.8% yoy. If the inflation data confirms these forecasts, this will give added impetus for the BoC to join the US Fed and hike the cash rate to 1.75% at next Wednesday’s Monetary Policy meeting. Given that both rate hikes by the Bank of Canada this year were done during meetings releasing the Monetary Policy Report (January and in July) this is basically the last chance for the Bank of Canada to hike rates this year and have a press conference at their disposal after the policy meeting to justify the move. Currently the USD/CAD is trading around the 1.3082 level a test of support at 1.3050 is likely on solid CPI data later tonight.