Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD is slightly weaker back down to Friday’s levels.  US bond yields increased by 2bp to 2.24% and US equity is 0.2% higher.  US Q2 current account deficit widened to $124 billion – the widest since Q4 2008.  A wider US current account deficit is the mirror image of Europe’s and Japan’s current account surplus.  A wider US current account deficit will weigh on the USD while a wider European and Japanese current account surplus will support EUR and JPY

The bigger issues for the USD are ahead of us: tomorrow morning’s FOMC meeting and next week’s release of detail on tax reform.  The WSJ reported that Senate Republicans are considering a $1.5 trillion tax cut over a decade.  Spread over ten years, that is a small tax cut and would provide only modest upside to capital flows into the USD and US equity market.  Ahead of the 2016 Presidential election, the Tax Policy Centre estimated Trump’s tax cuts were worth $6.2 trillion over ten years.

  • AUD/USD is back up where it has been most of September.  AUD has been resilient to the $11 per ton fall in the iron ore price this month.  Helping to support AUD is growing market pricing of an RBA rate hike.  On 1 September a rate hike in May 2018 was 50% priced; yesterday it was 78% priced.  RBA Assistant Governor Luci Ellis speaks today (1.05pm Sydney).

Yesterday’s RBA minutes remain positive on Australia’s labour market.  The RBA reiterated that wage growth is expected to remain low for some time, before picking up gradually in response to the strengthening labour market. This suggests the RBA is in no rush to normalise interest rates but the next move in interest rates is up.

The RBA warned that “a further appreciation of the Australian dollar would be expected to result in a slower pick-up in growth and inflation”. Moreover, the RBA noted it expects iron ore prices “to fall in the period ahead because of the ongoing expansion of global iron ore supply following an extended period of strong investment… members also noted that Chinese steel production per capita was likely to be close to its peak and that growth in Chinese steel production would not add much to global demand for iron ore in the future”.


Overnight Data:

  • In US economic data, housing starts fell by 0.8% in August to a 1.18 million annualised rate. Import prices rose by 0.6% in August (forecast +0.4%) with export prices up 0.6% (forecast +0.2%). The current account deficit expanded from US$113.5 billion to US$123.1 billion in the June quarter. And chain store sales in the latest week were up by 3.6% on a year ago, down from the 4.5% gain the previous week.


Global Equity Markets:                                                                                                                  

  • European sharemarkets were mixed on Tuesday. Telecoms were in favour with speculation of a merger. CNBC reported that US wireless carriers T‑Mobile and Sprint Corp were in active merger talks. Shares in Deutsche Telekom, which controls T‑Mobile, rose by 3%. And traders awaited the US Federal Reserve interest rate decision.  The STOXX 600 rose by less than 0.1%. The German Dax was flat and the UK FTSE gained 0.3%. In London trade, shares in Rio Tinto rose by 0.5% while BHP lifted 0.9%.
  • US sharemarkets posted modest gains on Tuesday ahead of the Federal Reserve rate decision. Investors monitored the US President’s address to the United Nations, watched the progress of Hurricane Maria and digested news of an earthquake in Mexico. Investors also digested news of the bankruptcy of Toys ‘R’ Us. Telecoms rose on news of a possible merger in the sector. The Dow Jones and S&P 500 hit fresh record highs. The Dow Jones rose by 39 points or 0.2% with the S&P 500 up 0.1% and the Nasdaq rose by 7 points or 0.1%.



  • Global oil prices ended lower on Tuesday. Traders are awaiting weekly US inventory data, expected to show a lift in stocks in the latest week. Traders also await the Federal Reserve decision and Friday’s meeting of OPEC and non‑OPEC oil producers to discuss several options to limit supply and support prices. Brent crude fell by US34 cents or 0.6% to US$55.14 a barrel. US Nymex fell by US43 cents or 0.9% to US$49.48 a barrel.
  • Base metal prices were mixed on Tuesday on the London Metal Exchange. Nickel, zinc and tin fell by up to 0.8% while other metals rose up to 1.7%. The December Comex gold futures price fell by US20 cents to US$1,310.60 per ounce. The spot gold price was trading around US$1,311 an ounce in late US trade. Iron ore fell by US$2.50 or 3.5% to US$68.30 a tonne.



  • In Australia, the CommBank Business Sales index is released. The Reserve Bank Assistant Governor Luci Ellis delivers a speech.
  • In the US, the Federal Reserve hands down the monetary policy decision. And weekly housing finance data is released.


Indicative Rates (Bank to Sell):

AUD / USD 0.7960 AUD / CAD 0.9704 USD / JPY 111.55
AUD / JPY 88.41 AUD / THB 25.58 GBP / USD 1.3510
AUD / EUR 0.6619 AUD / HKD 6.1520 NZD / USD 0.7318
AUD / GBP 0.5867 AUD / SGD 1.0705 NZD / EUR 0.6100
AUD / NZD 1.0860 AUD / FJD 1.5844 AUD / CNY 5.2393
AUD / CHF 0.7509 AUD / PGK 2.5171 All Ordinaries 5772.38
AUD / DKK 4.9141 EUR / USD 1.1847 Gold $US/oz 1311.37
AUD / SEK 6.3137 EUR / GBP 0.8880 Oil WTC $/b 49.49



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