Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD moved lower in the overnight session despite stronger than expected September durable goods data and October PMI data. The subsequent spike in two‑year and ten‑year U.S. treasury yields to 1.61% and 2.47% spooked U.S. equity markets and sent U.S. stocks and the USD lower as participants pondered U.S. economic growth prospects in the light of higher U.S. treasury yields. Treasury yields declined later in the session and ended marginally higher at 1.59% and 2.43% respectively. Participants wait on further news about the 0.8% of GDP fiscal stimulus package containing up to $1.5 trillion of tax cuts. The U.S. House of Representatives is scheduled to vote today on a Senate budget resolution that paves the way for the fiscal package.
  • AUD/USD remained heavy in overnight trade but found support around its 200 day moving average as we expected. Market participants absorbed the implications of lower than expected Australian inflation in Q3, and with the prospects of the Fed, ECB, BoE and BoC all set to tighten monetary policy well‑before the RBA, AUD is currently struggling to lift. However, with the Australian domestic economy illustrating strong employment growth, and the global economy showing broad‑based strength, industrial commodity prices and Australia’s terms of trade will remain firm, supporting the AUD. In addition, Australia’s current account deficit will remain structurally smaller (at 1.5% to 2.0% of GDP) than its three‑decade average of 3.5% of GDP over the next couple of years, generating further strength in AUD. It is difficult for us to get too bearish on AUD, but a period of under‑performance is likely in the very short‑term.

 

Overnight Data:

  • In US economic data, durable goods orders increased by 2.2% (forecast: +1.0%) in September, new home sales surged by 18.9% to 667,000 units (forecast: ‑0.9%, 555,000 units) in September and home prices rose by +0.7% (forecast: +0.4%) in August.  Mortgage applications fell by 4.6% last week.

 

Global Equity Markets:                                                                                                                  

  • European sharemarkets declined on Wednesday with a mixed batch of company results sparking some profit taking prior to the ECB meeting on Thursday.  The broader European STOXX 600 index fell by 0.6% and the German Dax declined by 0.5%.  The UK FTSE fell by 1.1%, despite a +0.4% (forecast: +0.3%) pick‑up in UK GDP growth in Q3.
  • US sharemarkets fell on Wednesday with downbeat corporate earnings results and political uncertainty around the Trump Administration’s 401k retirement scheme plans weighing on sentiment.  Downbeat earnings pushed wireless carrier AT&T’s shares down by 4.0%.  Shares in Boeing fell by 2.9% after the company revealed a US$329 million charge for its troubled KC‑46 aerial refuelling tanker.  The Dow Jones fell by 112 points or 0.5%.  The S&P 500 declined by 0.5%.  And the Nasdaq fell by 35 points or 0.5%.

 

Commodities:                                                                                         

  • Global oil prices were mixed on Wednesday after the US Energy Information Agency announced that US crude inventories increased by 856,000 barrels (forecast: ‑2.6 million barrels) over the week to October 20.  Brent crude rose by US10 cents or 0.2% to US$58.43 a barrel.  US Nymex declined by US29 cents or 0.6% to US$52.18 a barrel.
  • Base metal prices were mixed on the London Metals Exchange on Wednesday.  Aluminium was the strongest performer rising by 1.3%, while nickel fell by 1.0%.  Thengold futures price rose by US70 cents or 0.1% to $1,279.00 an ounce.  The spot gold price was trading around US$1,277 an ounce in late US trade.  Iron ore fell by US60 cents or 1.0% to US$61.10 a tonne.

 

Ahead:

  • In Australia, import and export prices are released.  Reserve Bank Deputy Governor Guy Debelle gives a speech entitled ‘Uncertainty’.
  • In the US, advance goods trade balance and pending home sales data are released.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7655 AUD / CAD 0.9719 USD / JPY 113.69
AUD / JPY 86.66 AUD / THB 24.67 GBP / USD 1.3266
AUD / EUR 0.6463 AUD / HKD 5.9127 NZD / USD 0.6892
AUD / GBP 0.5746 AUD / SGD 1.0403 NZD / EUR 0.5833
AUD / NZD 1.1094 AUD / FJD 1.5807 AUD / CNY 5.0809
AUD / CHF 0.7424 AUD / PGK 2.4295 All Ordinaries 5972.69
AUD / DKK 4.7995 EUR / USD 1.1666 Gold $US/oz 1277.81
AUD / SEK 6.2769 EUR / GBP 0.8907 Oil WTC $/b 51.96

 

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