Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • AUD/USD declined to a fresh five‑month low on Friday and has underperformed the modest decline of the broad USD trade‑weighted index that has occurred since late October. This is a big change in AUD’s performance because since the start of this year, until the beginning of November, AUD had otherwise displayed an inverse relationship to the broad USD.
  • What appears to have driven the change in the AUD’s inverse correlation to the broad USD since late October has been the decline in Australia’s two‑year bond yields. Australian bond yields have fallen because of a lower than expected Australian Q3 inflation outcome, as well as a lower than expected Australian Q3 wages outcome.
  • Lower Australian two‑year bond yields since late October have been in direct contrast to higher U.S. two‑year bond yields, as well as higher Asian two‑year bond yields over the same period. Not shown on the chart, but we have also had a rise in European bond yields since early November too. Australia’s trade‑weighted index has subsequently fallen as Australia’s two‑year bond yields have diverged from the global trend of rising two‑year bond yields.
  • Until we get a convergence in Australia‑global bond yields, AUD will continue to under‑perform. This week’s RBA minutes and speech by the RBA governor (both Tuesday) are unlikely to generate a significant lift in Australian two‑year bond yields or the AUD. Today’s speeches by RBA Kearns (12.35pm Sydney time) and Kohler (2.50pm) are unlikely to be market moving.
  • USD is likely to range‑trade this week because no progress is expected on the passage of the Tax Package until next week, when the full Senate is due to vote on the package. It is a shortened trading week in the U.S. with the Thanksgiving Holiday on Thursday.

 

Overnight Data:

  • US housing starts soared by 13.7% to a 1.29 million annual rate in October (forecast 1.185m). Building permits rose by 5.9% to a 1.297m annual rate (forecast 1.247m). The Kansas City composite index eased from +23 to +16 in November. China house prices in October were up 5.4% on a year ago, down from the 6.3% annual gain in September.

 

Global Equity Markets:                                                                                                                  

  • European shares fell on Friday in response to weak earnings updates and a rash of broker downgrades. But shares in pay TV provider Sky rose 4% on reports that Verizon and Comcast may be interested in acquiring the business. The pan‑European STOXX 600 index fell by 0.3% to be down 1.3% over the week ‑ the second week of declines. The German Dax fell by 0.4%. The UK FTSE lost 0.1%. In London trade, shares in Rio Tinto rose by 0.1% while BHP fell by 0.3%.
  • US sharemarkets fell on Friday. Investors debated whether the Republican tax reforms will be passed by the Senate. After passing the House of Representatives, there is more opposition to the reforms in the Senate. But some apparel and shoe retailers rose on encouraging sales and earnings results. At the close of trade, the Dow Jones was lower by 100 points or 0.4%, closing near session lows. The S&P 500 was down by 0.3% and the Nasdaq lost 10.5 points or 0.2%. Over the week the Dow fell 0.3% and the S&P 500 lost 0.1% but the Nasdaq rose 0.5%

 

Commodities:                                                                                         

  • Global oil prices rose by just over 2% on Friday. There were reports that OPEC oil producers and non‑OPEC producers such as Russia are more willing to extend the agreement to restrict output. Brent crude rose US$1.36 or 2.2% to US$62.72 a barrel. US Nymex rose by US$1.22 or 2.2% to US$56.55 a barrel. Over the week Brent fell 1.4% and Nymex fell 0.3%.
  • Base metal prices rose by up to 2% on Friday on the London Metals Exchange. Nickel rose the most with aluminium up just 0.1%. Over the week nickel fell 4.5% and lead fell 3.6% but aluminium rose 0.1% and tin rose 0.2%. The gold futures price rose by US$18.30 or 1.4% to $1,296.50 an ounce. The spot gold price was trading around US$1,294 an ounce in late US trade. Over the week gold rose by US$22.30 or 1.8%. Iron ore fell by US30 cents or 0.5% to US$61.50 a tonne. Over the week iron ore fell US50c or 0.8%.

 

Ahead:

  • In Australia, the CommSec Home Size report is due.
  • The US the leading index is out.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7517 AUD / CAD 0.9521 USD / JPY 112.12
AUD / JPY 83.89 AUD / THB 23.94 GBP / USD 1.3222
AUD / EUR 0.6359 AUD / HKD 5.8101 NZD / USD 0.6812
AUD / GBP 0.5660 AUD / SGD 1.0177 NZD / EUR 0.5777
AUD / NZD 1.1021 AUD / FJD 1.5696 AUD / CNY 4.9814
AUD / CHF 0.7281 AUD / PGK 2.3879 All Ordinaries 6038.26
AUD / DKK 4.7215 EUR / USD 1.1641 Gold $US/oz 1294.41
AUD / SEK 6.3213 EUR / GBP 0.8918 Oil WTC $/b 56.52

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