Strong US inflation data boosted bond yields and the US dollar, but depressed equities (the S&P500 is currently down 0.6%) and commodities. The US dollar index is up 0.7% on the day. EUR fell from 1.1580 to 1.1506 – a 16-month low. USD/JPY rose from 112.90 to 113.98. AUD was only slightly affected, falling from 0.7380 to 0.7341 – a one-month low. AUD/NZD rose from 1.0360 to 1.0381. US 2yr treasury yields rose from 0.43% to 0.51%, while the 10yr yield rose from 1.46% to 1.58%. BEI inflation jumped from 2.64% to 2.72% - the highest since 2012. Markets are fully pricing the first Fed funds rate hike to be in August 2022, compared to yesterday’s October 2022.
Commodities: : Brent crude oil futures fell 2.2% to $83, copper fell 1.3%, gold rose 0.8%, and iron ore fell 3.4% to $89 – an 18-month low.
Overnight Currency Range
Currency Pair Low High
AUD/USD 0.7333 0.7393
EUR/USD 1.1482 1.1595
GBP/USD 1.3418 1.3563
USD/JPY 112.78 114.00
NZD/USD 0.7069 0.7131
USD/CAD 1.2387 1.2497
USD/CNH 6.3852 6.4018
AUD/JPY 82.950 83.950
AUD/NZD 1.0344 1.0390
AUD/USD broke through some key support overnight on its way to a low of 0.73335. The next level of support can be found ahead of 0.7260 while offering interest is consistent to 0.75c. Australia’s October labour force survey is due later this morning and should start to reflect the early stages of the emergence from lockdowns on the east coast. The reference period for survey responses was 26-Sep to 9-Oct, which pre-dated the major lifting of lockdowns in NSW, Victoria, and the ACT (nearly 50% of the Australian population was still under stay-at-home orders). But the market expects employment to have benefited from businesses preparing for lockdowns to end. Moreover, mobility in lockdown-affected regions had already been rising through September.
Event Risk Data Today
Aust: Balancing the start of NSW’s recovery against the last stage of Vic’s lockdown, Westpac anticipates employment to fall by 50k in October (market median is +50k), with risks to the upside. A further decline in participation should limit the rise in the unemployment rate to just 0.1ppt (Westpac f/c: 4.7%). November MI inflation expectations will also provide timely insight into consumer views on inflation pressures.
NZ: Food prices in October should reflect a seasonal drop in vegetable prices (Westpac f/c: -0.8%). The November ANZ business confidence survey will meanwhile reveal how businesses are dealing with rising costs and downside profit risks despite firm demand.
UK: Fuel shortages, supply issues and ongoing delta risks are likely to materially slow.
GDP: growth in Q3 (market f/c: 1.5%). The September trade balance should reflect the UK’s tough trade environment due to Brexit.
US: Veterans Day; bond markets closed; equities open.