Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD rallied across the board to near a four‑month high and U.S. 10‑year Treasury yields rose to 2.45% (highest level since March). Broad‑based EUR weakness, favourable U.S. tax reform developments and speculation about the next Fed Chair supported a firmer USD. Odds that monetary hawk John Taylor will be the next Fed Chair cannot be ruled out. Still, current Fed board member Jerome Powell remains the front runner.
  • Importantly, the U.S. House of Representatives (House) voted in favour of the Senate’s budget resolution that allows for US$1.5 trillion increase to the budget deficit over the next ten years (equivalent to roughly 0.8% of GDP). Consequently, the House and Senate now have a joint 2018 budget with reconciliation instructions. This will allow the Republicans to pass a detailed tax bill in the Senate with only a simple majority (50 votes plus Vice‑President Pence’s vote), instead of the typical 60‑vote threshold that is normally required. The Republicans currently hold 52 seats in the Senate. The tax legislative process will now get underway and Republicans have leeway to make deep tax cuts without revenue offsets. This is USD positive.
  • Softer U.S. Q3 GDP growth later tonight (11:30pm Sydney) is unlikely to curtail USD strength. In our view, any weakness in the hurricane affected Q3 GDP growth will unwind in Q4. We project Q3 GDP growth to ease to 2.0%saar from 3.1%saar in Q2. The Atlanta Fed GDP tracker points at U.S. Q3 GDP growth of 2.5%saar, which is roughly in line with consensus.
  • AUD/USD fell below its critical 200‑day moving average largely because of broad‑based USD strength. Cautious comments from RBA Deputy Governor Guy Debelle early during the London trading session briefly undermined AUD. Debelle noted “there still remains a sizeable degree of spare capacity in [Australia’s] the labour market” and raised the possibility consumer price index overstates the exact magnitude of inflation.
  • In the short term, AUD/USD will likely remain heavy.  But by year end, we still expect AUD/USD to trade closer to 0.8000.  Australia’s terms‑of‑trade will remain at levels consistent with a firm AUD/USD because encouraging global economic activity supports industrial commodity prices.  Moreover, the structural improvement in Australia’s current account deficit is intact and the real interest rate spread between Australian and the U.S. favour a higher AUD/USD.


Overnight Data:

  • The European Central Bank (ECB) announced plans to halve its bond buying program from €60bn to €30bn per month, starting in January 2018.  The program, however, is being extended until at least September 2018.  There was no change in interest rates.
  • In US economic data, the advance goods trade balance deficit rose to US$64.1bn (forecast: US$64.0bn) in September from a revised US$63.3bn in August.  Pending home sales were flat (forecast: +0.2%) in September after falling by a revised 2.8% in August.  Claims for unemployment insurance fell to 239,500 in the past week, down from a revised +248,500.


Global Equity Markets:                                                                                                                  

  • European sharemarkets rebounded on Thursday boosted by the ECB’s continued policy stimulus.  Spain’s IBEX share market rose by 1.9% as Catalan independence concerns receded.  The broader European STOXX 600 index rose by 1.1% and the German Dax increased by 1.4%, rising to a record all‑time closing high.  The UK FTSE rose by 0.5%.
  • US sharemarkets increased on Thursday due to robust earnings reports and optimism about President Trump’s proposed tax cuts.  The US House of Representatives voted to pass the 2018 fiscal year budget plan, clearing a procedural path forward for the tax bill. Twitter shares jumped 18.5% after the company announced that it was nearing its first ever profit result.  The Dow Jones rose by 71 points or 0.3%.  The S&P 500 increased by 0.1%. And the Nasdaq fell by 7 points or 0.1%.



  • Global oil prices rose on Thursday, supported by ongoing tensions in northern Iraq and investor expectations that Saudi Arabia will continue to limit output.  Brent crude rose by US86 cents or 1.5% to US$59.30 a barrel, a 27‑month high.  US Nymex rose by US46 cents or 0.9% to US$52.64 a barrel.   Most base metal prices fell on the London Metals Exchange on Thursday. Nickel (‑0.9%) declined the most.  The gold futures price fell by US$9.40 or 0.7% to US$1,269.60 an ounce.  The spot gold price was trading around US$1,267 an ounce in late US trade.  Iron ore fell by US50 cents to US$60.60 a tonne.



  • In Australia, producer prices and the annual national accounts are released.
  • In the US, economic growth (GDP), core personal consumption deflator (inflation) and consumer sentiment data are released.


Indicative Rates (Bank to Sell):

AUD / USD 0.7613 AUD / CAD 0.9705 USD / JPY 113.97
AUD / JPY 86.40 AUD / THB 24.57 GBP / USD 1.3164
AUD / EUR 0.6516 AUD / HKD 5.8795 NZD / USD 0.6844
AUD / GBP 0.5759 AUD / SGD 1.0398 NZD / EUR 0.5871
AUD / NZD 1.1111 AUD / FJD 1.5787 AUD / CNY 5.0563
AUD / CHF 0.7444 AUD / PGK 2.4157 All Ordinaries 5982.55
AUD / DKK 4.8383 EUR / USD 1.1507 Gold $US/oz 1267.48
AUD / SEK 6.3415 EUR / GBP 0.8855 Oil WTC $/b 52.39



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