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Global Market Update
The View from Australia

by Craig Killaby | November 17, 2021

Data/Speakers

 

> NZ Q3 PPI Input & Output : 1.6% & 1.8% v. 1.7% & 1.4% exp.  

> AU October MI Leading Index : 0.2% v. 0.0% prev.

> AU Q3 Wage Price Index : 0.6% v. 0.6% exp.

> UK October H/line CPI & Core CPI : 4.2% & 3.4% v. 3.9% & 3.1% exp.

> CA October CPI : 0.7% v. 0.7% exp.

 

Overnight Headlines (BBG)

> Inflation remains the key topic for markets, with UK consumer prices rising to a decade high of 4.2%, all but locking in a hike from the Bank of England next month

> WTI crude was choppy, as reports that Biden/Xi discussed China’s release of their crude stockpiles as a means of cooperation between the two nations

What you need to know

The pressure is mounting on the AUD, with the currency sliding as inflation angst took hold while local wage price increases failed to deliver despite returning to pre-pandemic levels. The AUDUSD looked heavy into yesterday’s open, holding around the 0.7300 handle before drifting lower throughout the session. AU Q3 WPI was the key data for the day, with inflation forecasts for the RBA hinging on rising wages, the data came in right on market estimates with wages rising 2.2% on the year. The number is well below the 3% level needing to be seen for the RBA to speed up their tightening path, with the slide in the AUDUSD seen in the aftermath all the way to a session low of 0.7263.

 

EURUSD saw a stop run in Asia, breaking through 1.1300 and touching 1.1264 before recovering into the European open. UST yields rose in Asia, as the Dollar looked to be breaking out, although on the open today it seems as though that breakout was short-lived with yields down across the UST curve. In the UK, a hot inflation print buoyed the Pound as market expectations for a rate hike from the Bank of England ramped up with the hottest consumer price print in ten years and seeing the GBPUSD recover as much as 0.75% from the session lows.

 

In the US, the volatility is starting to pick up into the end of the year with US equity markets seeing mixed results with the S&P500 down 0.3% while the NASDAQ gained. The dollar is down against the EUR, GBP and JPY although commodity currencies underperformed with the AUD, NZD and CAD seeing losses against the Buck. Risk appetite in commodity markets seems to be souring, with the price of WTI crude down 3.4% as traders worried about China releasing their reserves and flooding supply. While copper is down near 3%, Gold has been able to jump as the move lower in UST rates markets was supportive.

 

The Day Ahead

 

Data

 

> US FOMC Members Evans and Bostic to speak

> NZ Q4 Inflation Expectations : 2.27% prev.

> AU RBA Ast. Gov. Ellis to speak

> US Weekly Unemployment Claims : 260K exp.

> US November Philly Fed Manufacturing Index : 24.2 exp.

> US FOMC Members Williams, Evans to speak

 

The data docket is light in Asia, so again we need to keep an eye on headlines from the US/China relations as the co-operation between the two superpowers becomes a fluid situation. Some Fedspeak on the calendar in Asia, with hawkish tones starting to get louder, next week may provide some heavy risk with the Fed chair decision upcoming.

 

US weekly labour market data will be watched, while expecting some positive data from the Philly Fed data. Tough to pick a direction for today, however the AUDUSD looks heavy yet again and I will need to stick to my recent call that 0.7200 may be on cards.

 

Range Today : 0.7240 – 0.7300

 

AUD/USD Technicals

 

Yesterday’s wage number in AU was pivotal, and likely caps the upside in the pair in the near-term as it becomes clear that easy RBA policy in the face of tightening overseas may limit appetite in the AUD. The 0.7290 level is my target on a break higher, while the pair may run into some support seen at 0.7240 on another dollar run. Will be an interesting weekly close with key dollar indexes on the verge of a breakout.

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