> NZ Q2 GDP : 2.8% v. 1.1% exp.
> AU August MI Inflation Expectations : 4.4% v. 3.3% prev.
> AU August Employment Change & Unemployment Rate : -146.3K & 4.5% v. -78.5K & 5.0% exp.
> CA August ADP Non-Farm Employment Change : 39.4K v. 221.3K prev.
> US August Core Retail Sales & H/line Retail Sales : 1.8% & 0.7% v. -0.1% & -0.7% exp.
> US August Philly Fed Manufacturing Index : 30.7 v. 18.9 exp.
> US Weekly Unemployment Claims : 332K v. 325K exp.
Overnight Headlines (BBG)
> According to an article in the Financial Times, the ECB’s internal modelling suggest that a rate rise may come sooner than anticipated
> US Congress is looking ahead to what will be an important end to the month as the two sides of the aisle try to agree on a new debt ceiling limit while the Democrats attempt to get their massive spending push across the line
What you need to know
It was a tale of two sessions yesterday as the morning in Asia seemed quite optimistic for local risk sentiment and the AUDUSD as the Kiwi data exceeded estimates, only to see a swift reversal as August AU employment showed the drastic impact of the extreme lockdowns on the labour market. NZ Q2 GDP all but locked in a rate rise to come from the RBNZ in the first week of October, coming in 1.7% above street estimates as growth surged 2.8% in Q2. Although the data does not reflect the lockdowns in NZ, the data should give Orr and the RBNZ confidence to make their rate increase, although nothing can be ruled out for the Central Bank who have had quite the time forecasting their own monetary policy. NZDUSD jumped on the data, dragging the AUDUSD along with it ahead of the local employment report. The August labour market data saw sharp job losses in the month of August, down 146K jobs split across both full and part-time work while the unemployment rate stayed down at 4.5% as the participation rate fell sharply. As anticipated by the RBA, the impact of the lockdowns came in the hours worked, which was down 3.7% (or 66 million hours) as the east coast remains locked inside as they await the vaccination target to be met.
The AUDUSD reversed the early morning rally, slowly drifting lower throughout the session and eventually dropping below the 0.7300 handle in the US session. US retail data surprised markets, with both the headline and core numbers beating estimates as the US consumer seemed to be more active in August despite the Delta surge. The Dollar strengthened on the release, as the DXY is up 0.4% from yesterday and looking poised to retest the 93.00 ahead of the all important Fed next week. US equities a touch lower on the day, with the S&P500 down 0.15%. Biggest moves over the past 48 hours have come in commodity markets, with the situation in China with Evergrande raising some significant alarm bells for Chinese equity markets and hitting demand for commodities hard as the property slowdown is expected to be fierce. Iron ore has felt the brunt of this move, down another 9% and only a touch above the US$100/tonne mark. While Copper also reversed nearly all of yesterday’s gains, down 4%. UST yields rising across the curve has again hit the price of Gold, which is down 2% on the session. USTs have come back to the limelight, as the US10y yield now approaches 1.3400%, as a test of the recent high of 1.3800% the key ahead of the Fed next week.
The Day Ahead
> NZ August Business Manufacturing Index : 62.6 prev.
> UK August Retail Sales : 0.5% exp.
> US September Prelim UoM Consumer Sentiment : 71.9 exp.
> US September Prelim UoM Inflation Expectations : 4.6% prev.
As we but a bow on an interesting week for the AUDUSD, the pair is looking soft yet again as the Aussie opens up sub 0.7300 on the Dollar’s surge. Looking ahead to the week ahead investors will need to prepare for what may be some volatility with an election in Canada, RBA minutes and a very important Fed decision.
I have been flagging September as a pivotal month for the medium term direction for the AUDUSD, and it seems to be coming to fruition with the Fed’s decision and rhetoric in next week’s decision having huge ramifications. Something to note is the Evergrande story, an unexpected turn for China and a major worry for the global growth story. Investors will need to monitor the situation as the potential contagion risks ramp up. For now, it is a watch this space story, with eyes on Beijing as to how much they will let this crash go.
Range Today : 0.7260 – 0.7320
The pair is looking weaker by the day as key moving averages drift lower as we come to the end of the week. Holding around support at the 0.7290 level as I write, the intraday test will be the overnight low of 0.7274. Seems to be some resistance around 0.7350, however the momentum seems to be building towards the downside.
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