The Australian dollar continues to underwhelm in the 0.65s despite last week's reassuring Oct. jobs data. As expected, unemployment ticked lower, restoring the idea of a gently rebalancing labour market. However, concerns around AI and tech stock valuations, weaker China Oct. activity data and the US govt. reopening saw AUD's momentum capped. The week ahead includes US Sept. jobs data, global PMIs, Fedspeak and a speech by RBA Asst. Gov. Sarah Hunter.
Australian dollar continues to underwhelm in the 0.65s
The Australian dollar starts the week continuing to underwhelm in the 0.65s despite last week’s more reassuring Oct. jobs data. As expected, unemployment ticked lower, restoring the scenario of a gently rebalancing labour market. However, concerns around AI and tech stock valuations combined with weaker China Oct. activity data and the US govt. reopening saw AUD's momentum cap out around 0.6580. The week ahead includes US Sept. non-farm payrolls, global PMIs, Fedspeak and a speech by RBA Asst. Gov. Sarah Hunter in Sydney.
Aussie unemployment falls, US government reopens
Last week's domestic labour data revealed that 42.2k jobs were added (vs exp. 20k) in Oct. and the unemployment rate ticked down to 4.34%, unwinding some of the previous month's weakness as expected. The volatility in unemployment over the last few months is attributable to youth-driven swings, however the data reaffirmed the baseline scenario of a gradually softening labour market with unemployment expected to track a gradual uptrend.
Furthermore, the print largely aligned with the RBA’s forecasts of Q4 unemployment near 4.4%. In the absence of rapidly cooling jobs market, the hurdle now for RBA rate cuts is high with this week's RBA Nov. meeting minutes likely echoing a more non-committal tone.
The Westpac-MI consumer confidence index rose 12.8% to 103.8 in November, marking the highest and first net-positive read in almost 4-years. The NAB business conditions followed in a similar fashion, rising to the highest level since March 2024 in November. With US-China tensions continuing to ease, recovery across consumption and recent meetings between the US and Australia involving rare-earths, this seems to have lifted confidence for businesses and consumers.
Globally, the US government shutdown came to an end last week after 43 days following agreement on a temporary spending bill. The deal, amongst other things, will extend the Supplemental Nutrition Assistance Program (SNAP) through Sep. 30 and provide funding for most federal agencies through Jan. 30. However, the Senate will reportedly vote next month on whether or not to extend the Affordable Care Act subsidies. Further, if the two parties can't come to an agreement on a spending bill which funds agencies through the end of the fiscal year, we could see another shutdown ensue in 3 months time.
Fedspeak last week was inherently more hawkish as multiple Fed members flagging the upside risks to inflation and an unwillingness to cut rates ahead of key inflation data while also flagging growing downside risks to the labour market, which saw expectations of a Dec. Fed cut pared back slightly (-10bp currently priced).
China's activity data cooled more than expected in October with fixed asset investment and industrial production recording worryingly weak results. However, this weakness was reportedly partly due to "unstable external factors" and producers bringing forward orders to September ahead of the "Golden Week" holiday in October. As such, chances of further stimulus remain unlikely at this stage.
Risk-off vibe sends crypto lower
US equities fluctuated over the week as concerns grew around big tech's eye-watering AI-investment commitment and overvaluation fears. The S&P500 fell more than 3% from its intra-week high of 6869 to 6650 before stabilising to finish the week in the middle of this range.
Risk-off sentiment also triggered a bearish correction in crypto markets. Bitcoin has been declining steadily over the last month, unwinding YTD gains of nearly 30% - dipping below $95,000 today. AU-US 10-year yield spreads continued to push higher today, sitting near post-COVID highs.
Moving to the crosses; AUD/NZD hit a 12-year high early last week at 1.1630 supported by diverging economic outlooks and widening AU-NZ yields spreads, however posted more than a 1% correction following weaker China data and risk-off sentiment - opens the week trading just above 1.15. AUD/EUR was down 0.63% over the week near 0.5619, AUD/JPY was fairly flat over the week treading just above 100.0.
The look ahead...
The week ahead remains relatively quiet with the delayed September US non-farm payrolls report headlining calendars. It's worth noting that the October report will also be released in due course, but without an unemployment rate, which may see more weight placed on September's data. Further, with markets divided on the Fed rate cut path, a weaker print could see markets pricing in more chance of a Dec. Fed rate cut.
The RBA's Nov. meeting minutes are also due out, which likely echo the more non-committal tone towards future rate cuts, flagging heightened uncertainty about the outlook in "both directions." However, with effectively no rate cuts priced by markets for next year, the minutes aren't likely to catch markets by surprise.
Global CPI, PMIs and Fedspeak will also feature this week.
Monday
Canada Oct CPI
US Nov Empire State Manufacturing
Fedspeak; Waller, Kashkari, Williams, Jefferson.
Tuesday
RBA Nov Meeting Minutes
Fedspeak; Logan, Barkin, Barr.
Wednesday
Australia Oct Westpac Leading Index, Q3 Wage Price Index
UK Oct CPI
Eurozone Oct CPI (Final)
FOMC Oct Meeting Minutes
Thursday
RBA Assistant Gov. Sarah Hunter speaks in Sydney
US Sep Non-farm Payrolls
Fedspeak; Goolsbee, Hammack, Cook, Paulson.
Friday
Australia, Japan, UK & US Nov S&P Global PMI (Prelim.)
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