AUD/USD starts the week on slightly steadier ground (0.6570). The looming risk of a US government shutdown from 1 Oct has seen the USD open the week with a broadly softer tone. Negotiations over a short-term bill to keep the federal government funded through to mid-Nov are ongoing. US Sept payrolls on Friday headlines the global calendars, but the release depends entirely on whether the US government stays open. Locally the focus is on the RBA policy meeting tomorrow.
Aussie grinds it out in the mid-0.65s
AUD/USD starts the week on slightly steadier ground (0.6570). The looming risk of a US government shutdown from 1 Oct has seen the USD open the week with a broadly softer tone. Negotiations over a short-term bill to keep the federal government funded through to mid-Nov are ongoing.
US Sept payrolls on Friday headlines the global calendars, but the release depends entirely on whether the US government stays open. Locally the focus is on the RBA policy meeting tomorrow.
AUD/USD's pullback from its mid-Sept 0.6707 highs extended a little further last week, the pair touching a low of
0.6521, mostly due to a round of constructive US data at the back end of the week. The AUD-side of the equation is doing just fine. In fact, local markets are walking back RBA rate cut expectations. But this is not enough to sustain AUD/USD while US data is also beating expectations.
The third and final update to US Q2 GDP was revised up notably, to a punchy 3.8% annualised pace, on account of stronger private services consumption and business investment (AI/data centers). On the same day US jobless claims fell to 218k, pretty much the lowest reading of the year, while durable goods orders rose by more than expected.
This mix of data soothed jitters about an economy that is facing a significant tariff impost and a material reduction in immigration. If sustained this kind of data has the potential to make amends and subdue a lot of bearish medium term USD thinking.
But the US labour market isn't showing anywhere near the same kind of momentum. Job openings have been trending lower and hiring intentions have cooled a lot. The consensus for this week's US Sept payrolls is for a +50k increase. That would be in pretty much in line with the pace of the last of the last 6 months - soft - and well down from the trend pace back in Q1, which was closer to +175k. The unemployment rate commands as much if not more attention. Immigration restrictions have dramatically slowed the growth of the US labour force, so even with soft employment growth the unemployment rate isn't rising much. If a US government shutdown is not averted this marquee release will be delayed.
Last week's (August) monthly CPI indicator produced a commotion for local markets - not for the first time, and even though it is less detailed and representative than the full quarterly CPI survey. Australia's monthly CPI YoY gauge printed stronger-than-expected at 3.0% (vs exp 2.9%) driven by lifts in fuel, dwelling and services prices which were somewhat offset by falling electricity prices.
The big question is whether this signals a stronger underlying inflation pulse. We'll found out when Q3 CPI is released 29 Oct. At the very least, the widespread view is that a benign looking 0.7% q/q increase in the trimmed mean quarterly CPI is much less likely. Westpac has revised its forecast up to 0.8% and other forecasters have pencilled in higher forecasts.
Rates markets trimmed expectations for the RBA's November meeting in the wake of the monthly CPI indicator, taking down the probability of a cut to almost a line-ball 50-50 call. The next full RBA rate cut is not priced until Feb 2026 and the terminal rate is priced around 3.28%.
That's quite a step change from where things stood a few weeks ago, when markets were confidently predicting a Nov RBA rate cut (pricing it at -22bp), anticipating a follow up in Feb 2026 and the terminal rate was priced below 3.00%.
How is the RBA going to play it this week? There's a pretty good chance that the Bank will note that private consumption is on a surer footing. Governor Bullock will likely repeat comments to Parliament last week that, "Since the August meeting, domestic data have been broadly in line with our expectations or if anything slightly stronger". Assistant Governor Hunter was a little bolder, describing the economy in a “cyclical upturn” at the same appearance.
This kind of language doesn't amount to a "hawkish pivot", not even close. But it sure seems to imply a higher bar for cuts. At the same time, the Governor will no doubt stress that Q3 CPI Oct 30 will be determinative. All told, this speaks to a Bank that will continue with a cautious and gradual approach to policy, as it has long underscored.
AUD had been quietly ceding ground on cross (ex-AUD/JPY and AUD/NZD) in the days prior to the monthly CPI release. AUD/EUR and AUD/JPY were testing 1 and 2 week lows respectively. The stronger monthly CPI produced good sized rebounds for both, though the gains have not really stuck. AUD/EUR is at 0.5600 to start the week, while AUD/JPY trading around 97.65.
AUD/NZD continued to extend its already impressive run, taking out 1.1300 last week and settling in the mid-1.13s, its highest levels in 3 years. Both legs of this cross want to run in opposite directions and the net result is that the AUD/NZD cross has been breaking higher impulsively in recent weeks.
Private domestic demand appears to be on surer ground in Australia and RBA rate cut expectations have been trimmed. However across the Tasman, fledging activity green shoots have come a cropper. Q2 GDP a few weeks ago contracted a lot more than expected and markets are giving a non-negligible chance for a larger 50bp RBNZ rate cut in early October.
For a good part of Sept US equities were printing record highs almost daily. But the tide turned a little last week, with the S&P500 down almost 1%. US 10-year yields trailed higher over the week up from 4.13% to 4.17%.
Gold continued its impressively surge higher capping out just under $3800/oz last week, up almost 9% over the month as steady inflation numbers increased expectations of further Fed easing. Copper marked its largest weekly gain in 3-months climbing by over 4% last week to just under $10500 on the back of global supply shortage concerns
Japan's ruling Liberal Democratic Party is scheduled to elect a new leader following the resignation of Shigeru Ishiba. The two favoured candidates are Shinjiro Koizumi and Sanae Takaichi, with the former larger leading the latter in polls conducted among LDP voters.
China will also be commencing its Golden Week Holiday this week (Oct 2-8) which should see fairly neutral price action across Iron ore futures.
Tuesday
China Sep Manufacturing & Non-manufacturing PMI
Australia Aug Building Approvals
RBA Monetary Policy Meeting
UK Q2 GDP (Final)
US Aug JOLTS Job Openings
Fedspeak; Logan, Goolsbee
Wednesday
China Golden Week Holiday commences (1 - 8 Oct)
Australia, Japan, UK, Eurozone, US Sep Manufacturing PMIs (Final)
Australia Sep Cotality Home Value
Eurozone Sep CPI (Prelim.)
US Sep manufacturing ISM survey
Thursday
Australia Aug Trade Balance, Household Spending
RBA Semi-Annual Financial Stability Review
Fedspeak; Logan
Friday
Australia, Japan, Eurozone, UK & US Sep Services PMIs (Final)
US Sep Non-farm payrolls, ISM services
Saturday
Japan's ruling LDP party to elect new Leader/PM (Oct 4)
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