Australian Dollar bruised but undeterred
The Australian dollar explored lower levels last week in what has already been a pretty challenging few weeks. Encouraging signals from the US Administration that suggest it is trying to dial down tensions with China helped AUD at the margin. But markets were still skittish, and the Sept. labour market report was soft, reviving expectations for a Nov. RBA rate cut. That prompted a couple jabs lower in the Australian dollar, though it ultimately proved to be a mostly consolidative week. The week ahead is important, including China's Fourth Plenum to discuss its 5-year plan, and the delayed US Sept CPI. Japan's Diet votes to elect a new PM and the RBA's Bullock and Jones speak.
Australian Dollar bruised but undeterred
The Australian dollar explored lower levels last week in what has already been a pretty challenging few weeks since it touched 11-month highs on 18 Sept of 0.6707. Encouraging signals from the US Administration that suggest it is trying to dial down tensions with China helped AUD at the margin. But markets were still skittish, and the September labour market report was soft, reviving expectations for a November RBA rate cut. That prompted a couple jabs lower in AUD/USD to the 0.6440 area, though it ultimately proved to be a mostly consolidative week.
The Australian dollar starts the week just above 0.6500. The week ahead is important, including China's Fourth Plenum to discuss its 5-year plan, and the delayed US Sept CPI. Japan's Diet votes to elect a new PM and the RBA's Bullock and Jones speak.
RBA rate cut expectations remain a rollercoaster
RBA rate cut expectations have been on a bit of a rollercoaster lately, and last week's jobs report made for another dip. A slightly lower than expected 14.9k jobs were added in September, making it the fifth consecutive month that employment has undershot consensus expectations. A clear step down in labour demand appears to be unfolding, evidently attributable to the pullback in the "care economy" sector. But the real "blow" was the unemployment rate, which rose to 4.5%, its highest level in almost 4 years.
Recall, ahead of this release, November RBA rate cut odds were lengthening, with only about a 40% chance of a cut priced in. A stronger August monthly CPI indicator several weeks ago and cautious non-committal RBA speak was driving expectations in the direction of fewer RBA cuts. Some commentators were even musing about the possibility that the RBA was done on cuts for this year. But after the jobs report, November RBA rate cut expectations have jumped again to 75%.
The soft jobs report weighed on AUD-crosses, though they stabilised into week's end; AUD/EUR is down 1% over the week, near 0.5576, AUD/JPY fell by 1.2% to 98.13, AUD/NZD ticked 0.3% lower over the week.
RBA speak last week mostly echoed existing messaging, i.e. that policy is marginally tight and following upside surprises in private demand, the bank will be reworking projections. Assistant Governor Sarah Hunter outlined downward revisions to the Bank's productivity, potential output and sustainable wages growth forecasts, and flagged that the RBA remains on alert to a potentially stronger CPI print in the September quarter. Note that much of this landed prior to the Sept jobs data.
There are a few headlines on China to process. Ahead of this week's Fourth Plenum, China's Q3 GDP and factory sector data for Sept slightly bested expectations. Though, retail sales, property investment and property prices remain soft. Bejing sought to downplay fears that tighter rare earth export controls will threaten supply chains, and the US Administration sought to dial down tariff risks. At this stage, a meeting between Presidents Trump and Xi is expected to go ahead on the sidelines of the Seoul APEC Leaders' meeting late October.
Global markets skittish
It's been smooth sailing for risk assets for many months now, but the threat of 100% tariffs on China and the flaring up in US regional bank risks shook things up a little last week. The US government remains in shutdown with no end currently in sight either (noting that the longest shutdown in history lasted 34 days, during Trump's first term). The S&P500 still managed to eke out a gain last week, +0.6%.
US10 year yields broke down last week, through 4.00%. Ongoing labour market angst, dovish comments from Fed Chair Powell and a flaring up in US regional bank risks all played their part.
Gold continues to glitter
From Monday's opening levels last week, gold had soared USD363/oz at one point, to USD4379/oz. That made for a gain of more than 9%, impressive by even gold's standards. Trade uncertainty, geopolitical risks and de-dollarisation have all been central to gold's ascent this year. Intriguingly, last week's eye-catching gains continued even as a Gaza truce was announced, the US sought to dial down temperatures around the tariffs/rare earth spat with China, and political risks in both France and Japan eased. French PM Lecornu’s pension reform concessions admittedly only delay painful French fiscal choices, but his position looks secure for now. LDP leader Takaichi’s expansionary fiscal and dovish BoJ plans look much less likely too, now that the LDP has to work with other parties in the wake of the collapse of the LDP-Komeito coalition.
Gold saw a heavy correction on Friday afternoon though, falling almost 2.9%. Silver fared worse, correcting 6.7% intraday on news that the London supply shortage was starting to ease.
The look ahead...
China will be holding its Fourth Plenum Monday to Thursday this week, to discuss the 15th five-year plan. While "The Plan" will not be officially released until March 2026, the readout can still send important signals. The blueprint is expected to set a course for a more strong and sincere push to rebalance the economy, boost consumption and internationalise the CNY - all encouraging signals for China's asset markets and foreign investor appetite.
The US Sept CPI, which was delayed following the US Govt shutdown, will be released this week. Fed Chair Powell last week signalled that the labour market is the higher of the Fed's priorities right now and noted that higher goods inflation primarily reflects tariffs rather than broader inflationary pressures. The vibe in markets is that it would have to be a materially stronger than expected Sept CPI to derail expectations for a late-Oct Fed cut (currently fully priced).
Japan's LDP party will sign a coalition deal with the Japan Innovation Party, teeing up Sanae Takaichi to be Japan's first female PM. But in doing so, some of the markets' worst fears for very expansionary fiscal policy and dovish presure on the BoJ may not to come pass. The Nikkei cheered the result, up 3% on Monday.
We will also see speeches from RBA Governor Bullock, and Assist. Governor Brad Jones as well as global PMI data.
Monday
China's CCP holds Fourth Plenum to discuss 15th five-year plan (Oct 17-23)
President Trump to host Australian PM Albanese in Washington
Tuesday
Canada Sep CPI
ECB President Lagarde speaks at Norges Bank Conference
RBA Ass. Gov Brad Jones speaks at ISDA/AFMA forum in Sydney
Japan Diet vote to elect Japan's new PM
Wednesday
UK Sep CPI, PPI
Thursday
-
Friday
Japan Sep CPI
Eurozone Oct HCOB Manufacturing PMI (Prelim.)
Australia, Japan, UK, US Oct S&P Global Manufacturing PMI (Prelim.)
US Sep CPI (delayed print), Oct UoM Survey (Final)
RBA Bullock speaks in Sydney
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