Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD rose overnight mostly versus EUR but US 10-year Treasury yields fell 4bps to 2.213%. Comments from FOMC voters William Dudley and Charles Evans overnight did not materially impact USD or US yields. Dudley noted he still expects US inflation to be close to 2% over the medium term and for the Fed to “continue to remove monetary policy accommodation gradually”. In contrast, Evans reiterated he prefers to see more momentum in inflation before raising rates again. FOMC voter Neel Kashkari speaks this morning (8:30am Sydney). The title of his speech is not known but there is a Q&A session.

A bigger driver of USD this week is the expected release of a tax reform plan on Wednesday. USD can lift further if the US administration releases sufficient details on its tax reform plan that has a chance of being passed into law.

  • AUD/USD eased overnight on a firmer USD and concerns tension between North Korea and the U.S. may escalate. North Korea’s foreign minister warned his country has the right “to shoot down United States strategic bombers even when they are not inside the airspace border of our country. In Australia, RBA Assistant Governor (Financial System) speaks today (7:15am Sydney).

By year-end, we still expect AUD/USD to trade closer to 0.8000. Australia’s higher terms of trade, the structural improvement in Australia’s current account deficit, and positive real interest rates spread between Australian and the U.S. favour a higher AUD/USD.

 

Overnight Data:

  • The US national activity index fell from +0.03 to ‑0.31 in August. The Dallas Federal Reserve manufacturing index rose from +17.3 to +21.3 in September.

 

Global Equity Markets:                                                                                                                  

  • European share markets were mixed on Monday as investors watched the German election results. German Chancellor Angela Merkel will need to form a new coalition. The Spanish market fell 0.9% due to the ongoing push by Catalonia for independence. The STOXX 600 rose by 0.2% while the German Dax rose less than 0.1% and the UK FTSE fell by 0.1%. In London trade, shares in Rio Tinto fell by 1.8% & BHP fell by 1.2%.
  • US share markets ended lower. North Korea vowed to shoot down US planes as it stated that the two countries were at war. The US Government rejected the notion that the countries were at war. Shares in Apple fell 0.9% on concerns about demand for its new iPhones. The Dow Jones fell by 54 points or 0.2% after being down 130 points in early trade. The S&P 500 fell by 0.2% and the Nasdaq fell by 56 points or 0.9%.

 

Commodities:                                                                                         

  • Global oil prices rose by over 3% on Monday. OPEC members indicated that they were producing at, or below, agreed quotas and that the global market was rebalancing. In addition, Reuters reported that “Turkey has said it could cut off a pipeline that carries oil from northern Iraq to the global market.” Brent crude rose by US$2.16 or 3.8% to US$59.02 a barrel. US Nymex rose by US$1.56 or 3.1% to US$52.22 a barrel.
  • Base metal prices were mixed on the London Metal Exchange. Aluminium, copper and lead fell by up to 0.6% while other metals rose up to 2.8% with zinc leading the way.
  • The December Comex gold futures price rose by US$14.00 or 1.1% to US$1,311.50 per ounce. The spot gold price was trading around US$1,309 an ounce in late US trade. Iron ore rose by US50 cents or 0.8% to US$63.40 a tonne.

 

Ahead:

  • In Australia, weekly consumer confidence data is released. Reserve Bank Assistant Governor Michele Bullock delivers a speech.
  • In the US, consumer confidence data, Case Shiller home prices and new home sales are set for release.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7884 AUD / CAD 0.9672 USD / JPY 111.73
AUD / JPY 87.71 AUD / THB 25.36 GBP / USD 1.3470
AUD / EUR 0.6638 AUD / HKD 6.1003 NZD / USD 0.7269
AUD / GBP 0.5828 AUD / SGD 1.0640 NZD / EUR 0.6135
AUD / NZD 1.0829 AUD / FJD 1.5959 AUD / CNY 5.2201
AUD / CHF 0.7470 AUD / PGK 2.5007 All Ordinaries 5741.74
AUD / DKK 4.9279 EUR / USD 1.1699 Gold $US/oz 1310.95
AUD / SEK 6.3268 EUR / GBP 0.8797 Oil WTC $/b 51.82

 

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