US equities stalled as Fed tightening expectations increased, the S&P500 unchanged on the day. The US dollar was supported by higher interest rates, which caused risk-sensitive currencies to underperform. US 2yr treasury yields rose from 0.39% to 0.44%, while the 10yr yield rose from 1.64% to 1.68% - a five-month high. Traded 10yr inflation rose from 2.59% to 2.65% - a nine-year high. Markets are fully pricing the first Fed funds rate hike to be in October 2022. Australian 3yr government bond yields (futures) traded around 0.91%-0.94%, while the 10yr yield rose from 1.79% to 1.85%. Markets are fully pricing the first RBA rate hike to be in September 2022.
Commodities, Brent crude oil futures fell 1.6% to $84, natural gas fell 1.1%, copper fell 3.9%, gold fell 0.1%, and iron ore fell 4.1% to $118.
Overnight Currency Range
AUD/USD 0.7459 0.7546
EUR/USD 1.1622 1.1667
GBP/USD 1.3776 1.3834
USD/JPY 113.65 114.41
NZD/USD 0.71415 0.7219
USD/CAD 1.2289 1.2383
USD/CNH 6.3835 6.4000
AUD/JPY 84.85 86.24
AUD/NZD 1.0425 1.0463
AUD/USD retreats from 0.7500 to 0.7460 amid risk-off market sentiment
The AUD/USD slides for the first time on the week, down 0.65%, trading at 0.7467 during the New York session at the time of writing. The pair retreated from the 200-day moving average at around 0.7545 due to an adverse market sentiment surrounding the financial markets, triggered by the Chinese real-estate giant Evergrande, which dented investors’ market appetite for riskier assets.
Furthermore, the US 10-year Treasury yield advances four basis points, sits at 1.674%, just short of 2021 high, provides additional support to the greenback. The market seems convinced that rising inflation will force the Fed to act faster than expected, despite how vocal have Fed policymakers have been lately. In the meantime, the US Dollar Index, which tracks the greenback’s performance against six rivals, rises a decent 0.06%, currently, at 93.66, weighing on the AUD/USD.
On the US front, the Initial Jobless Claims for the week ending on October 16 fell to 290,000, better than the 300,000 estimated by analysts, showing that the labour market is resilient, as it is starting to accelerate the pace moderately. Moreover, the 4-week moving average decreased by 122,000, to sit at 2,481,000 in the week ending on October 9.
AUD/USD peaked at a high of 0.7546 overnight before heavy selling pressures saw it trade to a low of 0.74655. Offering interest can now be expected toward this recent high while demand should materialise as we approach 0.7440
Event Risk Data Today
Australia: RBA Governor Lowe participates in an online panel at Universidad de Chile's Conference on Central Bank Independence, Mandates and Policies.
Japan: The October Nikkei manufacturing PMI is likely to reflect continuing global supply chain disruptions, whilst the October services PMI will highlight a lagged recovery versus other developed markets.
Euro Area/UK: The October Markit manufacturing PMIs for Europe, the UK and Germany are also likely to be affected by the global supply chain. The October services PMIs should remain robust with delta less of an issue for the region. UK consumer sentiment is expected to remain well above recent lows despite late September’s fuel crisis. September retail sales will again be burdened by the shift from goods to services as the UK reopens.
US: The October manufacturing and services PMIs are expected to print at healthy levels despite global uncertainties and delta being a higher risk to activity in the US. The FOMC’s Daly will speak on the Fed and climate change risk.