HotForex Forex News

10:40 NAFTA: USD/CAD will move on headlines but is not as vulnerable as MXN - Rabobank

Christian Lawrence, Senior Market Strategist at Rabobank, explains that CAD and MXN are sitting at the bottom of the pack in terms of FX performance both overnight and over the past week and the fourth day of the fourth round of NAFTA negotiations highlighted that discussions are becoming increasingly difficult.

Key Quotes

“Our base case is that NAFTA will not be terminated but it is a risk that cannot be ruled out.”

“We expect volatility in USD/MXN to pick-up heading into year-end and as such, we expect USD/MXN to head higher. USD/CAD will move on headlines but is not as vulnerable as MXN.”

“Looking forward Round 5 of the negotiations will be held in Mexico City in early November and we are of the view that MXN is likely to remain on the back foot as we head into year end. Indeed, our end of year forecast for USD/MXN currently stands at around 19.50 although should talks sour substantially during round 5 then we could be looking at a 20 handle much sooner.”

“A look at the daily USD/MXN chart shows resistance at 19.2956 which coincides with the highs from back in April. Above there, the psychological 20 handle comes into play before prior support at 20.13 becomes resistance.  The next level to look at to the upside beyond there is the all-time high of 22.0385.  In terms of support, the 200 day moving average that USD/MXN recently traded through should turn to support at 18.9596 and below there we would highlight likely support at 18.4614. In terms of momentum, figure 1 shows that we remain in neutral territory in terms of Rabo’s  Daily Momentum Model but with the RSI in overbought territory we should keep an eye on any dip in that indicator.”

“Turning to USD/CAD, it is interesting to note that the latest release of CFTC data showed net speculative longs are at the most stretched levels seen since October 2012. These data are for the week up to Tuesday 10th October and we are likely to see some paring back of positioning in the next set of data due for release on Friday. Despite this, these data do still tell us a story; the market is largely long CAD and given diminishing expectations with respect to further rate hikes from the Bank of Canada this year, we could still see some further unwinding of long CAD positioning provide support for USD/CAD.  That said, we expect the BoC to retain a hawkish bias heading into 2018 and foresee USD/CAD trading back down to 1.23 as we head into 2018.”

“In terms of USD/CAD daily technicals, we are currently in neutral territory with the September bull run stalling. The 50 day moving average at 1.248 should offer near term support before 1.2414 comes into play. Below there is weak support at 1.237 but if we see a continued move lower then there are no major support levels until 1.2111 and 1.2062. Below there it is the 1.20 handle that will be the main focus. On the upside, look for resistance at 1.2563 before the 1.26 level comes into focus.”

10:32 EUR/GBP hangs closer to 2-week lows, UK/EZ CPI and Carney in focus

The EUR/GBP cross came under some renewed selling pressure on Tuesday and has now eroded all of the previous session's modest recovery gains.

The shared currency held defensive in wake of the latest political developments in the Euro-zone and has been one of the key factors weighing on the cross through early European session. 

Meanwhile, the market seems to have digested Monday's report, via Bloomberg, noting that the Brexit negotiations could be headed for a catastrophic breakdown if the EU refuses to compromise. Hence, a modest uptick in the GBP/USD major further collaborated to the pair's offered tone on Tuesday.

Currently trading around 0.8875-70 band, back closer to near two-week lows, investors now look forward to the latest UK inflation figures, due in a short while from now, for some fresh impetus. 

   •  UK: Expect headline inflation to be 2.9% for September - TDS

Today's CPI print, along with BOE Governor Mark Carney's testimony before the Treasury Select Committee, would influence investors' expectations over a possible BoE rate hike move in November and act as an important catalyst that would drive the British Pound in the near-term.

Also in focus would be the German ZEW economic sentiment survey and the final Euro-zone CPI print, which would also be looked upon to grab some short-term trading opportunities. 

   •  UK and Eurozone inflation figures amongst market movers today – Danske Bank

Technical levels to watch

Immediate support remains near mid-0.8800s, below which the cross is likely to accelerate the fall towards 0.8815 intermediate support ahead of the 0.8800 handle and 0.8775 horizontal support.

On the upside, the 0.8900 handle now seems to have emerged as immediate strong resistance, above which a bout of short-covering could lift the cross back towards 0.8930 horizontal barrier.

10:21 US Dollar advances to daily highs near 93.40

The greenback is prolonging its upside momentum during the first half of the week, now sending the US Dollar Index to the upper end of the range near 93.40.

US Dollar bid on USTs

The index regained buying interest following the positive performance in yields of the key US 10-year reference, moving to fresh 3-day tops above the 2.31% handle.

USD remains underpinned by Sunday’s comments by Chief J.Yellen, while the potential appointment of J.Taylor as the next Fed’s Chairman lent renewed oxygen to the index. According to market participants, Taylor has a more hawkish message and could surely be a source of potential upside for the buck.

In today’s US data space, industrial and manufacturing production figures are due, seconded by capacity utilization, the NAHB index, TIC flows and the speech by Dallas Fed R.Kaplan (voter, hawkish).

US Dollar relevant levels

As of writing the index is gaining 0.18% at 93.22 and a break above 94.03 (23.6% Fibo of the 2017 drop) would expose 94.27 (high Oct.6) and finally 95.90 (38.2% Fibo of the 2017 drop). On the downside, the immediate support lines up at 93.10 (21-day sma) seconded by 92.92 (55-day sma) and then 92.75 (low Oct.13).

10:20 NZD/GBP: Risk of a downside break - Westpac

NZD/GBP continues to consolidate around 0.54, with arguably more risk of a downside break than a rebound, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“PM May has survived her immediate post- conference leadership challenge, but remains vulnerable. Brexit talk tensions and a lowering of growth projections as the autumn budget approaches are likely to weigh on GBP.”

“The UK event calendar this week includes housing surveys, CPI/PPI (17th), labour data (18th), retail sales (19th), and public finances (20th).”

3 months ahead: Medium term direction depends largely on whether the uncertainty from Brexit eventually causes a slowdown in activity. If so, NZD/GBP is likely to trade in the high 0.50s by year end. Alternatively, should the economy shrug off Brexit, then NZD/GBP could test the low 0.50s.”

10:17 GBP long positions eased, short USD positions edged higher - Rabobank

According to the IMM net speculators’ positioning as at October 10, 2017, net GBP long positions eased last week in response to political tensions within the UK’s ruling Tory party. 

Key Quotes

“PM May appears to have held onto her job – at least for now. This likely limited the impact on positioning. News that Brexit talks have reached an impasse could weigh on long positions going forward.”

Speculators’ net short USD positions edged a little higher but remain essentially consolidative. In late September they had increased to their highest level since April 2014 despite the hawkish signals from the Fed. Concerns that a December Fed rate hike will weigh on inflation expectations further out is weighing on yields and has implications for USD potential.”

On the back of good growth expectations, EUR longs crept higher for a third consecutive week. This is despite concerns regarding divisions in the Eurozone that followed the Catalan referendum and the reduction of Merkel’s standing at the German election. EUR longs have now surpassed their early September high.”

Net JPY short positions climbed for a third consecutive week suggesting that the market’s desire to hold JPY for safe haven reasons is dwindling. Strong levels of world growth are attracting funds into higher yielding destinations. That said, shorts are still well below the recent highs seen in July.”

CHF positions remained in negative territory for a tenth consecutive week. The increase in short positions last week appears consistent with the increase in EUR longs and a general preference for higher yield.”

CAD longs ticked higher again reaching their best levels since October 2012 following a good set of September jobs data. AUD longs dropped back for a second consecutive week consistent with the lack of hawkish rhetoric from the RBA. Chinese economic data and prices of iron ore and coal also remain in focus.”


10:12 NZD/EUR: 0.60-0.62 likely during the week ahead - Westpac

After dipping briefly below 0.60 last week, NZD/EUR appears in need of consolidation, with 0.60-0.62 likely during the week ahead, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“A light week for data keeps politics to the fore. Spain’s semi-autonomous Catalonia (20% of Spanish economy) continues to face off against the central government. A declaration of independence might be illegal, but could still trigger constitutional crises in Spain and EU. Catalonia would need to apply for EU membership and await entry into the Eurozone.”

“The event calendar this week includes EZ final CPI (17th), and the ZEW survey (17th). There’s also negotiations with Catalonia to watch.”

“3 months ahead: European economic data is improving, witness sentiment surveys at multi-year highs. However, after easing recently, political tensions in the EU could still resurface, with disconcerting rises in periphery parties in Germany and the prospect of Italian elections in H1 18. A German coalition may take months to form. Barring political shocks, though, NZD/EUR should gravitate lower to the high 0.50s.”

10:02 Austria HICP (YoY) rose from previous 2.1%to 2.6% in September

10:01 Austria HICP (MoM) climbed from previous 0% to 1.4% in September

10:00 USD/CAD jumps to mid-1.2500s, back closer to one-week tops

The USD/CAD pair caught some fresh bids on Tuesday and jumped back to mid-1.2500s, back closer to one-week tops touched in the previous session.

Despite yesterday's late pull-back, led by BoC's Q3 Business Outlook Survey, the pair managed to hold its neck above the key 1.2500 psychological mark, supported by stronger US Dollar buying interest and weaker oil prices. 

Persistent greenback demand, accompanied with a follow through profit taking slide in crude oil prices was seen weighing on the commodity-linked currency - Loonie and helped the pair to regain some fresh traction on Tuesday. 

Today's US economic docket features the release of import/export prices, industrial production and capacity utilization data, which along with a scheduled speech by Philadelphia Fed President Patrick Harker would now be looked upon for some fresh impetus.

Technical levels to watch

Bulls would be eyeing for a sustained move beyond 1.2560-65 hurdle, above which the pair is likely to accelerate the up-move towards the 1.2600 handle before eventually darting towards 100-day SMA barrier near the 1.2700 region.

On the downside, any pull-back from higher levels now seems to find immediate support near the 1.25 handle, which if broken could drag the pair back towards mid-1.2400s ahead of 1.2415-10 strong support.

09:58 Trump to visit Seoul Nov 7, leave Nov 8 - Yonhap

The South Korean news agency, Yonhap, out with the latest headlines citing that the US President Trump is expected to reach Seoul on Nov 7th and leave on the following day, Nov 8th.

09:55 USD/JPY stays vigilant on the upcoming elections Danske Bank

Mathias Mogensen, Analyst at Danske Bank, gave his views on the prospects for the pair and Sunday’s elections.

Key Quotes

USD/JPY gained last night with the cross rising above 112 on reports that US and North Korean diplomats may meet in Moscow later this week”.

“Financial markets seem very complacent that Shinzo Abe will remain as Japan’s Prime Minister after the general election on Sunday, and there is hardly any election risk premium priced into the FX option market”.

“The ruling LDP party´s strong lead in the polls stands in contrast to the latest cabinet survey, which showed another decline in Abe´s cabinet approval rating from 44% in September to 37% in October. Moreover, we note that a large share of the voters have still not decided who to vote for”.

“Hence, from a risk/reward perspective, we see value in buying USD/JPY put options with expiry on 23 October after the latest bounce in the cross to position for a possible increase in implied volatility and/or decline in spot in the event of renewed election uncertainty”.

09:54 GBP/USD sticks to the neutral bias UOB

In view of FX Strategists at UOB Group, Cable’s neutral outlook should improve while it trades above 1.3190.

Key Quotes

24-hour view: “GBP traded sideways for most part of yesterday before dropping sharply during late NY hours to hit a low of 1.3225. The decline appears to be running ahead of itself but another leg lower towards 1.3190/95 seems likely. That said, a sustained move below this level is not expected. Resistance is at 1.3290 ahead of the high seen near 1.3315 early yesterday”.

Next 1-3 weeks: “GBP edged above the top end of our expected 1.3100/1.3330 consolidation last Friday and touched a high of 1.3337. The undertone has improved considerably but we think it is too early to expect a sustained up-move in GBP. There is another strong resistance at 1.3380 and only a daily closing above this level would indicate the start of a bullish phase. To put it another way, the odds for such a move are not high at this stage but would continue to improve as long as GBP can hold above 1.3190 in the coming days”.

09:52 EUR/USD still capped by 1.1880 Commerzbank

Senior Analyst at Commerzbank Axel Rudolph noted the pair is expected to keep the trade below the 1.1880 area for the time being.

Key Quotes

EUR/USD’s rebound from the 1.1669/62 August and current October lows is taking a breather below last week’s high at 1.1880. While we would allow for an extension to the August 2 high at 1.1910 to be seen, we believe that it would struggle there. This level guards the 1.2092 September high”.

“We would treat a break below the 1.1662 August low as the completion of a top formation. Such a move would trigger a sell-off to the mid-June high at 1.1296 and the more important 1.1110 end of May low”.

“Above 1.2092 would target the 50% retracement from the move down from the 2014 high at 1.2168 and the 1.2383 200 month ma, but if seen, that is expected to hold”.

09:41 FX option expiries for Oct 17 NY cut

FX option expiries for Oct 17 NY cut at 11:00 Eastern Time, via DTCC, can be found below.

EUR/USD: $1.1760 (E415mn)

USD/JPY: 112.00 ($111mn)

AUD/USD: $0.7920 (A$605m), $0.7810 (A$330m)

09:36 UK: Expect headline inflation to be 2.9% for September - TDS

Analysts at TDS suggest that UK’s September headline inflation is likely to edge up close to the BoE’s 3% threshold, though they see weaker core inflation holding back an outright 3-handle this month.

Key Quotes

“Markets expect headline at 3.0% y/y and core at 2.8%, but we expect headline to be 2.9% and core quite a bit weaker at 2.6% y/y.”

“This morning at 9:15 BST also sees the newest intake of MPC members, Silvana Tenreyro & David Ramsden, make their public debuts before the Treasury Select Committee to discuss their views on the economy, followed afterwards by Governor Carney. While neither of the new MPC members have dissented in their policy votes to date, we think on balance they are likely to sound a dovish tone on the economy, principally over Brexit concerns. The session should provide clarity on how big a majority the MPC will have when it hikes rates in November as we expect – overly dovish tones from both could suggest a closer vote, but ultimately we think the BoE will hike.”

09:35 Gold extends overnight sharp pull-back from 3-week tops

Gold remained under some selling pressure for second consecutive session and extended previous session's sharp retracement from 3-week tops. 

On Monday, the precious metal initially added on to Friday's softer US CPI-led up-move beyond $1300 mark and was being supported by ongoing geopolitical uncertainty. However, a strong US Dollar rally prompted profit taking, especially after the commodity's recent rally of over 3.5% from near two-month lows touched on Oct. 6.

Fading safe-haven demand, accompanied with a follow through greenback buying interest, continued weighing on the yellow metal through early European session on Tuesday. Meanwhile, physical demand in India for the holiday season has also failed to lift sentiment and stall the metal's retracement to 4-day lows, marginally below $1290 level.

In absence of major market moving economic releases, broader market risk sentiment and the USD price dynamics would remain key determinants of the metal's movement on Tuesday.

Technical levels to watch

Weakness below $1287 level could get extended towards $1284 horizontal support, below which the commodity could drop back below $1280 level and head towards retesting 100-day SMA support near the $1276-75 region.

On the upside, $1293 level now becomes immediate hurdle and is followed by a strong resistance near the $1300 handle. A convincing move back above the mentioned barriers might now lift the metal towards $1308-10 strong resistance.

09:28 When are German ZEW surveys and how could they affect EUR/USD?

German ZEW surveys Overview

The ZEW will release its Economic Sentiment Index for the next six months for Germany, as well as the Current Situation Index at 0900GMT in the EU session later today, reflecting institutional investors’ opinions.

The headline economic sentiment index is seen edging higher to 20.0 in October after a 17.0 reading registered in September. While the current situation sub-index is also expected to improve to 89.0 versus 87.9 booked previously.

How could affect EUR/USD?

A positive headline reading may rescue the EUR bulls, sending the EUR/USD closer to 1.1800 levels. However, if the readings disappoint, the rate could drop back towards mid-1.17s.

Jim Langlands at FX CHarts noted: “EurUsd was choppy but has finished the day looking a little bit heavy, closing towards the bottom end of the day’s 1.1780/1.1820 range. The ZEW, EU CPI and the US Industrial Production will be the drivers today, but with the short term momentum indicators looking a bit soft we might expect further downside momentum, possibly towards 1.1700.  The topside looks capped at 1.1820 and selling rallies is preferred.” 

Key notes

EUR/USD headed to 1.1750 on political uncertainty, ZEW eyed

About German ZEW Surveys

The Economic Sentiment published by the Zentrum für Europäische Wirtschaftsforschung measures the institutional investor sentiment, reflecting the difference between the share of investors that are optimistic and the share of analysts that are pessimistic. Generally speaking, an optimistic view is considered as positive (or bullish) for the EUR, whereas a pessimistic view is considered as negative (or bearish).

09:17 NZD/JPY: 79 and 81 levels likely to contain prices - Westpac

NZD/JPY remains in a year-long contracting range, with 79 and 81 likely to contain prices during the week ahead, suggests Imre Speizer, Research Analyst at Westpac.

Key Quotes

“The event calendar highlights this week is Sep trade data due Thursday.”

3 months ahead: The BOJ’s defacto tapering of its asset purchases should be yen supportive. In addition, the Japanese economy is seeing a pickup in consumer activity, mitigating any slippage in external demand. The 84 area should cap this cross during the quarter ahead.”

09:14 Germany: Downside risks for ZEW index TDS

The German ZEW index for October is out, and analysts at TDS see downside risks, with a decline in the Current Situation index to 87.2 and an unchanged reading of 17.0 for the Expectations index, against market consensus of an improvement in both indexes.

Key Quotes

“The final September CPI print for the euro area is also released. Two ECB speakers are up today: Constancio speaks on financial stability at 8am BST, while Praet appears on a panel on “Europe matters” at 10:30am.”

09:11 NZD/AUD: Corrective rise appears complete - Westpac

The NZD/AUD cross’s recent corrective rise appears complete, and a retest of the 0.90 area is expected during the weeks ahead, suggests Imre Speizer, Research Analyst at Westpac.

Key Quotes

“Iron ore prices have risen during the past few days, and NZ remains no closer to knowing who its government will be.”

“The event calendar highlight this week is the jobs data. The unemployment rate has been hovering around 5.6% since mid-year, and that’s where markets expect it to be this week too.”

3 months ahead: Fair value for the cross is around 0.89. We see that as a fair target for the remainder of 2017. Supportive of the AUD are the rebound in iron ore prices and positive Chinese economic data, while the RBNZ’s on-hold stance (arguably even more entrenched than the RBA’s) is chipping away at NZ’s yield advantage.”

09:08 UK and Eurozone inflation figures amongst market movers today Danske Bank

Analysts at Danske Bank, point out that in the euro area, we are due to get the final HICP figures for September and they do not expect any changes from the preliminary release with regard to headline and core inflation, which reported a decline to 1.1% y/y.

Key Quotes

“It will be interesting to see which components caused the fall in service price inflation and whether they point towards any sustained upwards or downwards trend in core inflation, which will be important for ECB policy normalisation going forward.”

“In the UK, we are due to get the CPI inflation print for September but the release should not alter the Bank of England's members' views on the economy significantly and hence we still expect a 25bp Bank Rate hike next month.”

“Bank of England Governor Mark Carney, Deputy Governor Sir David Ramsden and MPC member Silvana Tenreyro are due to testify before the UK's Treasury today. We will look for any hints on whether they have changed their mind on a November hike.”

“In the US, we expect that the relatively muted growth in industrial production continued in September although the recent hurricanes increase uncertainty around the release.”

“We will also have the ECB's Vitor Constancio speaking at a conference in Lisbon and German ZEW expectations for October are due to be released.”

09:05 When are UK CPIs and how could they affect GBP/USD?

UK Sept CPI Overview

The UK docket has the CPI report, which will be published later this session at 0830GMT. The consumer prices in the British economy are expected to tick higher to 3.0% in Sept y/y. While core figures, excluding volatile food and fuel costs, are also expected to accelerate slightly to 2.8% in the reported month.

On monthly basis, the consumer prices are expected to arrive at 0.3%, when compared to 0.6% seen in the month of August.  

Deviation impact on GBP/USD

Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 15 and 60 pips in deviations up to 2 to -3, although in some cases, if notable enough, a deviation can fuel movements of up to 75 pips.

 How could affect GBP/USD?

On a positive print, we could see Cable attempt a bounce back towards 1.3300 (round number), beyond which 1.3338/40 resistance area (weekly highs) could be tested, opening doors towards 1.3400 levels.

Conversely, an unexpected drop in the CPI figures will cause GBP/USD pair to break below the key support located near 1.3230, below which a test of 1.3206/01 (10 & 50-DMA confluence) will be imminent.

Key notes

GBP/USD - Will UK CPI lift Sterling?

GBP/USD unchanged around 1.3250 ahead of UK CPI

About UK CPI

The Consumer Price Index released by the National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).

09:05 USD: Upside potential depleting? - Westpac

Following a 4% gain in the US dollar index (DXY) since early September (its largest monthly gain this year), last week witnessed a 2% pullback, leaving the chances of a sustained recovery uncertain, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“While there was ample upside potential for the USD as recently as a couple weeks ago, that has been depleted somewhat, with a Dec FOMC hike now almost fully priced in, and opposition among key Senate Republicans to a large tax cut on cost grounds becoming more apparent.”

“The event calendar highlights this week are the first of the Oct surveys, Empire, Philly and NAHB, none of which should ruffle the USD too much.”

3 months ahead: Beyond a near term stumble, the USD remains in good shape. Accommodative financial conditions point to yet more upside surprises in coming months while yield spreads should gravitate in the USD’s favour as the Fed Funds rate extends its glacial ascent above other countries’ key cash rates and as the Fed’s balance sheet shrinks relative to the ECB and the BoJ’s balance sheets.”

09:04 When are UK CPIs and how could they affect GBP/USD?

UK Sept CPI Overview

The UK docket has the CPI report, which will be published later this session at 0830GMT. The consumer prices in the British economy are expected to tick higher to 3.0% in Sept y/y. While core figures, excluding volatile food and fuel costs, are also expected to accelerate slightly to 2.8% in the reported month.

On monthly basis, the consumer prices are expected to arrive at 0.3%, when compared to 0.6% seen in the month of August.  

Deviation impact on GBP/USD

Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 15 and 60 pips in deviations up to 2 to -3, although in some cases, if notable enough, a deviation can fuel movements of up to 75 pips.

 How could affect GBP/USD?

On a positive print, we could see Cable attempt a bounce back towards 1.3300 (round number), beyond which 1.3338/40 resistance area (weekly highs) could be tested, opening doors towards 1.3400 levels.

Conversely, an unexpected drop in the CPI figures will cause GBP/USD pair to break below the key support located near 1.3230, below which a test of 1.3206/01 (10 & 50-DMA confluence) will be imminent.

Key notes

GBP/USD - Will UK CPI lift Sterling?

GBP/USD unchanged around 1.3250 ahead of UK CPI

About UK CPI

The Consumer Price Index released by the National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).

09:02 India: Twin-deficit problem seems to be resurfacing - ING

Prakash Sakpal, Economist at ING suggests that ING is forecasting a range trading in USD/INR around 65.00 over the next 12 months.

Key Quotes

“Exports surged by 25.7% YoY and imports by 18.1% in September, data over the weekend showed. It was a strongest export print in the current financial year started in April 2017, putting 1HFY18 growth at 12.0% YoY, an acceleration from -1.7% a year ago. But 25.2% 1HFY18 import growth was an even bigger positive swing from -13.2% a year ago, of which more than a fifth was oil-related. The trade balance posted a US$72.1bn deficit in 1HFY18, US$28bn wider on the year.”

“One of the twin-deficits, the fiscal deficit started thrashing Indian financial assets in September. And the other one, the current account deficit seems to be popping its head up again. At US$14.3bn in 1QFY18 the current deficit was the largest in four years and it came off the US$39.9bn customs trade deficit, which continued to widen in 2QFY18. We expect close to 1.5% of GDP current account deficit and about 4% of GDP fiscal deficit in FY2018 (cons: 1.5% and 3.6%, FY2017: 0.7% and 3.5%).”

“Better activity data last week has driven USD/INR below 65.00 (spot 64.93). We think it would take continued good economic news or a dramatic weakening in the USD for the pair to retest the August low of 63.58. We forecast range trading around 65.00 over the next 12 months.”

09:01 AUD/USD sticks to RBA minutes-led weakness below mid-0.7800s

The AUD/USD pair stalled RBA minutes-led slide and has managed to rebound around 10-pips from session lows touched earlier. 

The Australian Dollar came under some pressure after minutes of the RBA's October policy meeting revealed that any policy change would be dependent on domestic economic conditions and will not be influenced by tighter monetary policy elsewhere.

The central bank took yet another chance to raise concerns about the effects of excessive Aussie strength and dragged the pair to an intraday low level of 0.7835. 

   •  RBA Minutes: Step up in the exchange rate rhetoric - TDS

However, a subdued action around the US Treasury bond yields extended some support to the higher-yielding currencies and helped limit deeper losses, at least for the time being. 

It would now be interesting to see if the pair is able to maintain its neutral bias or turns for the worst amid a strong US Dollar buying interest. 

Later during the NA session, the US economic data - import/export prices, industrial production and capacity utilization data, would now be looked upon for some fresh impetus.

Technical levels to watch

Immediate support is pegged near 0.7825 level, below which the pair is likely to accelerate the fall towards 100-day SMA, currently near the 0.7800 handle, before eventually dropping to an important horizontal support near mid-0.7700s.

On the upside, momentum beyond 0.7860 level might confront fresh supply near the 0.7885-90 region, above which the pair is likely to surpass the 0.7900 handle and head towards testing 50-day SMA hurdle near the 0.7910 region.

08:59 NZ Q3 CPI: housing-led pressures dont justify RBNZ neutral stance TDS

Analysts at TDS note that New Zealand’s Sep qtr CPI rose by +0.5%/qtr, mid-way between TD at +0.6% and mkt at +0.4%, and above that expected by the RBNZ (+0.2%).

Key Quotes

“Annual inflation rose from 1.7% to 1.9%/yr, closer to the RBNZ’s 2% mid-point target.”

“The RBNZ under Wheeler shocked the markets a few times this year by remaining neutral despite bouts of data-led market bullishness. We don’t expect Spencer to maintain this artificial neutrality for much longer.”

“A flat 1.75% OIS does not reflect our view, and so any hawkish tones from Spencer will be a surprise for rates, and the NZD.”

“In the meantime, we are still waiting for the NZ First Board to announce which major party they will support in the wake of the inconclusive 23 September election. This uncertainty is capping NZD gains for now.”

08:56 NZD/USD: Upside risks - Westpac

Following a 7% fall since August, NZD/USD rebounded 2% last week, mostly reflecting a 2% fall in the US dollar index last week and for the week ahead, the USD could fall even further, posing upside risks for NZD/USD, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“Regarding local factors, we have NZ CPI, which we expect to register a temporary spike and thus pose upside risks for the NZD. Same goes for the GDT dairy auction (2% gain in WMP priced by futures). In addition, there’s the government formation announcement, which poses two-way risks.”

Three months ahead: Our medium term outlook for NZD/USD is largely dependent on the outlook for the US dollar. A persistent rebound in the US dollar by year end is needed to pull NZD/ USD back to the 0.70 area.”

08:53 RBA Minutes: Step up in the exchange rate rhetoric - TDS

The RBA minutes were released today, and we spied a step up in the rhetoric in relation to the exchange rate, points out the research team at TDS.

Key Quotes

“We ploughed through all the 2017 policy statements and minutes and the RBA today added “material further” to the usual ”appreciation would slow down the expected pickup in growth and inflation”.”

“The RBA timeline and AUD at the time is in the attached, but the summary is:

From February to July, the RBA claimed “The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment”.

In August, when the working AUD assumption for the RBA forecasts was lifted to $US0.80, the RBA noted that the higher AUD “It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.

  • The minutes added “a further appreciation of the exchange rate….”

In September the RBA repeated the August message word for word, including adding “further” in the Minutes.

For October, the RBA repeated “An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

  • Today’s Minutes, however, added “A material further appreciation of the exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

“Conclusion: At the risk of over-analysis, we conclude that the RBA could be comfortable with the exchange rate at current levels of $US0.78-79. This cannot be a surprise if the RBA's own August projections achieve above trend-growth and inflation back in the band with a working AUD assumption of $US0.80. Perhaps the AUD needs to be $US0.83+ before the Bank downgrades its growth and inflation projections.”

08:52 EUR/USD headed to 1.1750 on political uncertainty, ZEW eyed

The EUR/USD pair extends its retreat from two-week tops into a fourth day today, as uncertain political environment around the EU continues to dampen the sentiment around the Euro.

EUR/USD awaits fundamental drivers

The spot remains vulnerable amid rife political jitters, in the wake of Catalonia stand-off and Merkel defeat in the lower Saxony regional election.

The Catalan leader Puigdemont failed to offer clarity on his independence campaign yesterday, following which the Spanish government has offered him some time until Thursday to decide on whether he wants to declare independence or not.

On the other side, Germany's Social Democrats (SPD) beat Angela Merkel's Conservatives in a vote in the northern state of Lower Saxony on Sunday, implying Merkel’s weaker stance on the coalition talks, following last month’s disappointing election outcome.

More so, renewed upside seen in the US dollar in the overnight trades, tracking higher Treasury yields after the reports cited that the US President Trump was impressed by with Stanford University economist John Taylor and hence, Taylor could be the next Fed Governor. Taylor is known for his hawkish tilt on the monetary policy.

Moving on, focus now remains on the economic releases for fresh impetus on the major, with the German ZE surveys and Eurozone final CPI report eagerly awaited. Meanwhile, the US industrial output and Fedspeaks will emerge the market movers in the American session.

EUR/USD Technical View

Haresh Menghani, Analyst at FXStreet notes: “From a technical perspective, the pair is currently placed near its immediate support near the 1.1780-70 region, marking 23.6% Fibonacci retracement level of its recent slide from 1.2092 to 1.1669. A clear break below the mentioned support would confirm a fresh bearish break down and turn the pair vulnerable to head back towards retesting the 1.1700 handle with some intermediate support near mid-1.1700s.” 

“On the flip side, 1.1800 handle now seems to act as immediate resistance and any subsequent recovery attempts might now be capped at 38.2% Fibonacci retracement level near the 1.1830 region,” Haresh adds.

08:50 GBP/USD unchanged around 1.3250 ahead of UK CPI

The Sterling is alternating gains and losses on Tuesday vs. the greenback, taking GBP/USD to the mid-1.3200s ahead of the publication of UK’s inflation figures.

GBP/USD steady ahead of data

Cable is so far holding on to the lower end of the weekly range following yesterday’s pullback, although decent contention seems to have emerges around the 1.3250 region.

Renewed Brexit jitters are dominating the sentiment around the British Pound at the beginning of the trading week, while UK officials and EU negotiators continue to blame each other for the lack of significant progress (if any, at all) in the ongoing talks.

Looking ahead, UK’s inflation figures are due later followed by the Treasury Committee Hearings, where Governor M.Carney and MPC members S.Tenreyro and D.Ramsden are due to speak.

In the US docket, export/import price index is due, seconded by September’s capacity utilization, industrial and manufacturing production, the NAHB index and TIC flows.

GBP/USD levels to consider

As of writing the pair is advancing 0.02% at 1.3256 facing the next resistance at 1.3324 (21-day sma) seconded by 1.3338 (high Oct.16) and finally 1.3548 (2014-2017 down trend). On the flip side, a breakdown of 1.3205 (10-day sma) would aim for 1.3145 (55-day sma) and then 1.3121 (low Oct.12).

08:46 China: September credit was above expectations - Westpac

Elliot Clarke, Research Analyst at Westpac, explains that credit provision in China occurs through both the core and shadow banking systems – the latter is a network of trusts; investment funds; and intermediaries and September itself was above expectations and stronger than August.

Key Quotes

“For the September quarter, the increase was in line with the average through 2014– 2016 (excluding the outsized March quarter increase seen in each year).”

“Aggregate financing is up 16%ytd in 2017 compared to 12%ytd in September 2016. Bank loans have risen 15%ytd (11%ytd in 2016) while other finance has gained 22%ytd (15%ytd in 2016). Through 2015–17, around 74% of total aggregate financing has been supplied by the banks.”

“In the September quarter itself, over 61% of bank loans went to households. This share is up from 56% over the prior twelve months (to June 2017) and around 40% in the first half of 2016 – a share broadly sustained since 2010.”

“This highlights two salient points: (1) corporates demand for credit is modest versus history; (2) persistent house price gains and, to a lesser extent, consumption are boosting the demand for credit from consumers.”

“Authorities are not directly targeting or limiting growth in household leverage. But their governing of property markets seeks to manage how debt is used and, through stronger bank regulation, the terms on which funds are lent.”

“The use of wholesale funding by banks to expand their balance sheet is a trend that warrants close monitoring. To ensure financial stability amid rapid growth, high quality funding is as important as asset quality. This is even more true of the non-banks, who are increasingly turning to short-term interbank funding.”

“On non-bank lending more broadly, there has been a sharp pull back since the March quarter surge. In part this is because of greater corporate bond issuance, but it also looks as though demand has abated. Notably, entrusted loans (from one company to another) have been negligible. This could be due to a lack of demand and/ or large firms wishing to hold onto their capital.”

“All told, the September quarter highlights that momentum has been sustained in China’s economy in the second half of 2017. There is no immediate financial system risk, but close supervision is necessary to make sure none arise.”

08:40 China: A busy week ahead - ING

Iris Pang, Economist at ING sees the 19th Congress as likely to consolidate Xi Jinping’s power in the party, which is positive for the sustainability of future economic growth.

Key Quotes

“This week sees the start of China’s week-long 19th Congress. We sees this as likely to consolidate Xi Jinping’s power in the Party, which means reforms and anti-corruption campaigns should continue. This is positive for the sustainability of future economic growth. If Xi fails to line up party members in his camp to the top of the Party then anticorruption exercises would likely stop. On economic targets, China achieved 90% of the GPD target set for 2020 in 2016. So we expect a more aggressive target on growth to “around 6.5%” pa to 2025. If there is no GDP target then the tone would change to highlighting reforms, which is good for longer term growth.”

“This is also a busy week for Chinese data, with GDP, Industrial production, fixed asset investment data and retail sales all released. We expect some weakening momentum from previous data as the negative impact from cutting overcapacity in cement and other sectors is balanced against the positive impact from results on coal and steel from overcapacity reform and the emergence of new sectors.”

“Released yesterday, CPI and PPI were 1.6% and 6.9%YoY in September against our forecast of 1.5% YoY and 6.5% YoY respectively. As there are a lack of direct channels for PPI to shape CPI, the two are expected to continue to diverge. PPI has been dominated by a surge in LNG prices and coal prices. But metal prices have shown some loss of momentum. CPI inflation should be fairly stable if there is no adverse weather in the October.”

“On Thursday, China will release 3Q17 GDP. We expect the economy to grow 6.8% YoY (prior: 6.9% YoY), which is consistent with the consensus. So far, we are optimistic on China growth, especially the result from the still ongoing overcapacity cutting exercise.”

“We also believe that new growth areas, for example, innovative technology platforms, new energy cars, and the manufacturing of robots will support September industrial production growth at 6.2% YoY (consensus: 6.4%; prior: 6.0%).”

“Infrastructure investment has continued to be the main demand driver for commodities while residential property construction is under tightening measures. This should bring fixed asset investment to 7.8% YoY YTD growth (consensus: 7.7%: prior: 7.8%).”

“The middle class will continue to support retail sales, which we expect to grow 10.3% YoY in September (consensus: 10.2%; prior 10.1%). This figure does not count summer holiday spending abroad. Overall, this means the spending power of the growing middle class is large.”

“Overall, Chinese GDP should hold up well at 6.8% YoY in Q3 but the divergence of investment and retail sales still means China is continuing to evolve into a consumption economy. More importantly, we anticipate activity data to hold up pretty well through the rest of the year. The higher M2 growth at 9.2%YoY in September (prior: 8.9%), means loan growth is still high, and this higher liquidity will be supportive to the coming months’ economic activity. We forecast 2017 GDP to be 6.8%.”

08:34 AUD/JPY: Another test of 90 multi-week? - Westpac

Sean Callow, Research Analyst at Westpac, noes ha AUD/JPY is little changed over the past month or so, though the intervening failed probe of 90 may be instructive.

Key Quotes

“While there should be caution ahead of the Japanese elections on Sunday, our underlying inclination is for another test of 90 multi-week, so long as global risk appetite remains positive.”

“Beyond 90 however, the pair could lack fresh fuel to overcome Japanese investor profit-taking.”

“AUD should find ongoing support from reasonable domestic growth momentum (especially job creation) and the RBA’s patience with sluggish inflation, which keeps markets debating the point in 2018 when interest rates will be raised.”

“JPY in contrast seems likely to retain an underlying depreciation bias, with the Bank of Japan committed to buying enough JGBs to keep the 10 year at 0%, in a world where many key central banks are moving towards tighter policy.”

“As usual, there are ongoing downside risks on AUD/JPY from any deterioration in risk sentiment, with major stock indexes near record highs and volatility low. Spec positioning (long AUD/USD, long USD/JPY) implies substantial fuel for AUD/JPY selling in the event of a “risk off” event.”

08:30 Italy: Getting closer to a new electoral law - ING

According to Paolo Pizzoli, Senior Economist at ING, while addressing the issue of dis-homogeneity between chambers which affects the current Italian law, the new one would do little to improve governability, in their view and they expect intensified parliamentary activity to have it approved by early November.

Key Quotes

“After a parliamentary acceleration, made possible by the resort to confidence votes, the Italian Chamber of Deputies approved a new electoral law last Thursday. The new law was supported by the PD and AD (its centrist allies in the current government) and by opposition parties Forza Italia and the Northern League. It was opposed by the 5-Star Movement, by Fratelli d’Italia and by MDP, the party which was originated by the split of the leftist side of the PD last February. Starting this week, the new law will undergo examination by the Senate and, eventually, the vote of the Senate between end-October and the first week of November.”

A mixed system

The new electoral law, which will be applied to both branches of the Italian parliament, foresees a mixed system, with two-thirds of the seats allotted with a proportional system, and one-third with a first-past-the post system, with blocked lists. It introduces the same entry thresholds in both houses, which are set at 3% of votes for single lists and at 10% for coalitions. The possibility of forming coalitions for the first-past-the post part is the most relevant factor of the new system. However, coalitions will be loose in nature, as the law does not foresee the presentation of a common programme nor the indication of a common PM candidate. Still, the possibility to form coalitions will by itself affect the shaping-up of the campaign in view of the 2018 vote.”

Any impact on governability?

In our view, the introduction of the new law would not impart a dramatic change in terms of post-election governability.

The good news is that the new law would manage to harmonize the electoral system in the two Chambers, one of the main drawbacks of the so-called Consultellum, the current asymmetric system which emerged from two separate rulings of the Constitutional Court. As dis-homogeneity within the Consultellum was possibly the main concern of President Mattarella, we believe that the new scheme approved at the Chamber of Deputies might represent for him an acceptable compromise. Should the law also pass in the Senate in its current version, we believe it would not meet any resistance from the Italian Presidency.”

Next steps

The new law will now have to pass the test of the Senate, after which a full month will be needed to re-design constituencies. If no amendment will be made in the discussion, the vote of the Senate should mark the final approval of the law. Press reports indicate the intention of the government coalition to have the electoral law approved before the final vote of the Senate on the Budget law. This would impose an acceleration of parliamentary works and a possible vote of the law at the Senate in the first week of November at the latest. This would leave the parliamentary approval of the budget in December as the last relevant passage of the current legislature.

President Mattarella would then be in the position to dissolve the parliament early in January 2018. According to the Italian Constitution, the polling date has to be set at least 45 days and within 70 days after the parliament’s dissolution. Our current best guess is that, should the law be passed by the Senate, elections would take place in the first half of March 2018.”

08:13 IEAs Birol: OPEC compliance with oil output cut deal at 86% - RTRS

More comments crossing the wires from the IEA head Birol, via Reuters, as he speaks on the sidelines of the World Knowledge Forum (WEF) in Seoul.

Key Quotes:

“Their compliance is about 86 percent, higher than in the past... whether or not they will continue with this plan in November it’s up to them.” 

08:01 Forex Today: AUD slips on RBA minutes, CPIs, ZEW and Carney in focus

Risk-aversion emerged the main theme in Asia this Tuesday, with the Yen regaining ground against its American counterpart, following the warning issued by the North Korean UN ambassador. As a result, the Antipodeans also traded on the back foot, with the Aussie facing double whammy amid dovish RBA minutes.

Meanwhile, the US dollar extended its bid tone and went on to hit fresh five-day tops at 93.27, before entering a phase of consolidation near the last. The Asian equities picked-up strength over the last hour, while oil prices traded largely subdued, despite escalating Iraq tensions.

Main topics in Asia

RBA minutes: rate change timing here dependent on local economic conditions

The RBA minutes were released and the Aussie dropped a handful of pips with the minute not showing any surprises…

North Korean UN envoy says 'nuclear war may break out at any moment' - Guardian

North Korea’s deputy UN ambassador has warned that the situation in the Korean Peninsular has reached "the touch-and-go point and a nuclear war may breakout at any moment".

RBA's Ellis - Starting to see spill over effect from public infrastructure spending

Comments from RBA Assistant Governor Ellis crossing the wires via Reuters.

NZ CPI first thoughts - Westpac

Analysts at Westpac's first thoughts on the NZ CPI data that arrived as follows..

US, Japan fail to bridge gap on trade in economic talks - RTRS

Reuters out with the latest reports, citing that the US Vice President Mike Pence and Japanese Finance Minister Taro Aso failed to bridge the differences on issues of trade during economic talks on Monday. 

Key Focus ahead

Traders are poised for a busy calendar ahead, with plenty of risk events from the European calendar, viz., UK CPI, German ZEW surveys and Eurozone final CPI. Also, of significance remains the speeches by the BOE Governor Carney and board members Ramsden and Tenreyro. In the NA session, a fresh batch of US macro data are up for grabs, including the industrial production, import prices and capacity utilization. Besides, FOMC member Harker’s speech and NZ GDT price index data will also hog the limelight later on Tuesday.

GBP/USD - Will UK CPI lift Sterling?

GBP/USD fell to a low of 1.3225 on Monday after reports hit the wires that that unless the European Union concedes on some key issues, Brexit talks could collapse.

EUR/USD - Bond market sending mixed signals, focus on the Spanish / Catalonia standoff

The EUR/USD pair fell to a 5-day low of 1.1775 in Asia on reports that US President Donald Trump was impressed with Stanford University economist John Taylor during an interview for Fed Chair. 

Topsy Turvy Tuesday?

Dealers have spent the last 24 hours digesting Friday’s CPI fallout while keeping an eye on geopolitical risk amidst the deluge of Fed chair speculative headlines.

GBP - Will Hope for BoE Overshadow Brexit?

There was very little movement in currencies on Monday and this lack of volatility could be indicative of trading for the rest of the week.


07:50 Australia Q3 CPI Preview: No sign of inflation - Westpac

According to Justin Smirk, Analyst at Westpac, despite the surge in electricity and gas prices it is hard to find any broader inflationary pressure in Australian economy.

Key Quotes

“September is a seasonally strong quarter due to the post June 30 price resetting of many administered prices and as such, the ABS seasonal factors moderate our estimate to a seasonally adjusted 0.4%.”

“Key factors in Q3 are: the ongoing grocery competition holding back food prices; the annual repricing of the tobacco excise; surging electricity prices but decent gains in dwelling construction costs (especially in Sydney and Melbourne); almost flatrents; falling health; transport (including fuel) and communication prices.”

“There is a lot of interest in the impact of rising electricity prices in the September quarter CPI. Our forecast for a 16%qtr rise in electricity prices is based on an 18% to 20% surges in electricity bills in Sydney and Adelaide respectively, Melbourne had just a 5% increase as the price adjustment tends to be spread over the September and March quarters while Brisbane is looking at a 12% rise. Perth is not on the national electricity grid and had more modest 10% rise.”

“Considering our forecast headline inflation estimate of 0.74%; we estimate that 0.46 percentage points are contributed by energy costs, indicating that (ex- energy) headline inflation only increased by 0.27%.”

“Core inflation is forecast to print 0.3%qtr (0.29% at two decimal places) holding the annual rate flat at 1.8%yr. The trimmed mean is forecast to rise 0.27% while the weighted median forecast is 0.32%. The two quarter annualised pace of core inflation is forecast to decelerate to 1.7%yr from 2.1%yr - well below the bottom of the RBA’s target band.”

“Traded prices are forecast to be flat in the quarter –0.6%yr, while non-traded prices are forecast to rise 1.0% in Q3, 3.2% driven by rising housing and energy costs.”

07:48 NZ Firsts Peters: There is serious consensus on policy work but not on final outcome

New Zealand First Party leader Peters was on the wires earlier today, via Reuters:

There is serious consensus on policy work but not on final outcome

No decision made yet on who to back after NZ elections

Discussions still need to be had with labour and national parties

First party board members returning home after two days of meeting

The board and caucus has spent a couple of days on "very comprehensive discussions and preparations" for the party to make a final decision.

The board's work is complete at this point but more work needs to be done on "differences of calculations" and other things before they finalise a decision

07:38 Australia: Gradual non-mining recovery increasingly synchronised across the states - NAB

In view of analysts at NAB, the gradual non-mining recovery of Australian economy is becoming increasingly synchronised across the states and territories. 

Key Quotes

“Economic growth in most states is expected to strengthen somewhat in 2017-18 before moderating a little in 2018-19 as dwelling investment and LNG exports peak. The unemployment rate is forecast to decline in most states and territories with the exception of the ACT and the NT.”

Victoria and New South Wales will remain ahead of the pack in terms of state final demand growth, as non-mining business investment, infrastructure spending and services spending support growth as dwelling construction peaks. However, Victoria is forecast to experience the strongest growth in Gross State Product (just!) in 2017-18, thanks to faster population growth, despite the closure of key automotive manufacturing plants this year. Queensland and WA will also experience very strong growth in 2017-18 in particular as exports surge. NSW however will see a lower rate of unemploymentbettered only by the NT and the ACT (although unemployment is forecast to rise in both territories).” 

LNG exports will add significantly to growth in both Queensland and Western Australia, especially in 2017-18. There are also signs of stabilisation in WA as mining projects reach completion, although a pick up towards solid domestic demand growth remains someway off. Domestic demand in Queensland meanwhile has rebounded strongly, although will slow somewhat now that the 3 large LNG projects have completed construction and support from dwelling investment starts to wane.”

Not only has the recovery in growth broadened across the states, it has also broadened across industries in most jurisdictions. This is particularly the case in NSW and Victoria, but also in South Australia where state final demand and business conditions have rebounded strongly. Tasmania and South Australia now boast the strongest business conditions.”

The outlook for investment has improved the most for NSW and Victoria, with private capex expectations higher for 2017-18. Government infrastructure spending is also running at record levels in NSW, Victoria and SA, although will add less to growth from 2018-19 based on the current pipeline.”

Consumer spending is outpacing household income growth across all states and territories, as wages growth remains weak across the country, suggesting that households are dipping into their savings to fund spending (with the notable exception of Tasmania). With wages growth to pickup only gradually, we expect only gradual acceleration in consumer spending growth in most states, despite the widespread pick up in employment growth. Consumer spending is strongest in the NT, but likely to weaken there as population growth slows as the Icthys LNG project is completed. Meanwhile, high household debt levels will also be cause for consumer caution, particularly in the largest south-eastern states.”

Tourism spending (both domestic and international) and education exports will continue to expand in most states, particularly if our forecasts for renewed AUD depreciation prove correct.”

After shooting the lights out in 2016, agricultural conditions are likely to be much more challenging this year. Parts of NSW and Queensland have seen record breaking temperatures in close proximity to frosts, while southern WA, and more recently south-east Queensland, have seen soaking rains. We have again cut our wheat production forecast to 18.7 million tonnes – the lowest in a decade.”


07:28 NZ: CPI rose 0.5% in Sep quarter, annual inflation 1.9% - Westpac

New Zealand’s Consumer Price Index (CPI) rose by 0.5% in the September 2017 quarter as both headline and underlying measures showed inflation close to, but slightly to the lower side of, the Reserve Bank’s target midpoint, according to Michael Gordon, Senior Economist at Westpac.

Key Quotes

“Consumer prices rose 0.5% in the September quarter, right in line with our expectations. The result was slightly above the median market forecast of a 0.4% rise, and quite a bit higher than the 0.2% increase that the Reserve Bank had forecast in its August Monetary Policy Statement.”

“The annual inflation rate rose from 1.7% to 1.9%, putting it just a touch below the 2% midpoint of the Reserve Bank’s target band. Various measures of core inflation, which adjust for one-offs and volatile items, all tell a similar story: annual inflation was either steady or up slightly for the quarter, and generally sitting at 2% or a little below.”

“We wouldn’t make too much of the RBNZ’s forecast ‘miss’, for two reasons. One is that most of the difference was on the tradables side of the CPI, most likely reflecting developments in food and fuel prices in the two months since the RBNZ made its forecast. These prices tend to be volatile from one quarter to the next, and while the RBNZ can’t ignore them altogether, it has scope to look through any price changes that appear to be driven by temporary factors.”

“The second reason is that, in one respect, this was actually a helpful result for the RBNZ. In August the RBNZ was forecasting inflation to fall below 1% again next year, albeit briefly, as the weather-related spike in food prices early this year dropped out of the calculation. This wouldn’t have been a breach of the inflation target by any stretch, but it might have required some uncomfortable explaining. With today’s result, the RBNZ is less likely to find itself in that position (we expect annual inflation to bottom out at 1.1% next year).”

“Housing-related prices continue to rise, but their impact on inflation may have passed its peak.”

“Without stronger sources of price growth elsewhere, the risks around the Reserve Bank’s medium-term inflation target lie to the downside.”

07:24 BOE to hike rates in November BBG Survey

According to the latest Bloomberg Survey, a majority of the economists expect the Bank of England (BOE) to hike rates next month, when the central bank meets on November 2.

Key Findings of the survey:

76% of economists expect a rate hike in Nov

Up from just 22% in September

The majority of economists then see the bank on hold until Q1 of 2019

87% chance of hike next month

And fully pricing another hike by August 2018

07:15 USD/JPY takes a sharp U-turn on N. Korea risks, attacks 112.00

The USD/JPY pair stalled its 2-day recovery mode and turned back into the red zone amid renewed risk-off trades, sparked by fresh North Korea threat.

USD/JPY rejected at 10-DMA of 112.31

The safe-haven Yen is back in demand across the board, after the Gaurdian reported the North Korean UK envoy, as warning that the situation in the Korean Peninsular has reached "the touch-and-go point and a nuclear war may breakout at any moment".

The North Korean headlines triggered a renewed bout of risk-aversion across the board, boosting the demand for the safe-havens at the expense of the higher-yield/risk assets such as the US rates, Asian equities and oil prices.

Moreover, latest headlines citing that the US and Japanese trade talks failed during the economic talks on Monday, also added to the jitters surrounding the economic relationship between the two nations.

Meanwhile, the bulls appear to guard the 112 barrier, as the US dollar index defends bids above 93 handle, up 0.10% on the day. On Monday, the greenback derived support from higher Treasury yields on reports that John Taylor could be the next Fed Governor.

Focus now shifts towards the US dataflow and Fedspeaks for fresh impetus on the buck, while markets will pay close to attention to any N. Korea headlines for further momentum

USD/JPY Technical View

Jim Langlands at FX Charts lays out the preferred strategy: “The dollar traded down to Friday’s lows, today reaching 111.64, before bouncing strongly on news that the supposedly hawkish John Taylor had a positive interview with Donald trump regarding the upcoming Fed Chair vacancy. Currently near session highs of 112.28, the short term momentum indicators now appear set to allow further dollar gains, where 112.75 would be the first real hurdle ahead of 113.00, and 113.43 (6 Oct high). Good support now seen at 111.60/70, and buying dips is preferred today. Further out, the dailies look less positive, so further range trade between 112.00/113.00 may be in store. Buy US$Jpy @ 111.85. SL @ 111.45, TP @ 112.75.”

07:03 GBP/USD - Will UK CPI lift Sterling?

GBP/USD fell to a low of 1.3225 on Monday after reports hit the wires that that unless the European Union concedes on some key issues, Brexit talks could collapse.

The currency pair kept a low key in Asia, as it traded largely in the sideways manner below 1.3268 (38.2% Fib retracement of Sept. 20 high - Oct. 6 low).

All eyes on inflation

Kathy Lien from BK Asset Management writes, "according to the PMIs, price pressures accelerated in the month of September".

The UK consumer price index due for release at  08:30 GMT is expected to show the cost of living jumped to 3% y/y in September from 2.9% in August. A rise to 3% or more would improve the odds of a rate hike in 2018. As of now, the economists expect the BOE to hike rates in November and then maintain the status quo throughout 2018. Thus, British Pound would gain if the CPI prints at 3% or above 3%.   

However, the gains may not be sustainable as fears are mounting that a "no deal Brexit" could see Pound drop to parity with the Euro.

On the other hand, the odds of a BOE rate hike in 2018 would drop if the CPI prints below the August figure of 2.9%. In this case, Sterling could revisit 50-day moving average level of 1.3149.

GBP/USD Technical Levels

A break above 1.3268 (38.2% Fib retracement of Sept. 20 high - Oct. 6 low) could see the pair test supply around 1.3338 (Oct 13 high). A cut through the same would validate the argument that the pair has bottomed out at 1.3027. The subsequent move higher could be extended to 1.3443 (Sep 29 high).

On the downside, breach of support at 1.3251 (1-hour 100-MA) could yield a pullback to 1.3197 (1-hour 200-MA). A violation there would mean the corrective rally from the low of 1.3027 has topped out at 1.3338 (Oct 13 high). The spot could then re-test 1.31 handle.


06:36 Economists don t expect another BOE hike after November - Bloomberg

Economists believe the Bank of England (BOE) will hike rates in November and would maintain the status quo till the first quarter of 2017.

The UK’s first interest-rate hike in over a decade will take place at the BOE’s Nov. 2 meeting, according to 76 percent of those surveyed by Bloomberg, up from 22 percent of respondents in September.

Bloomberg report says, "Economists' prediction is at odds with the market's view. While money-market traders are pricing in an 87 percent chance of the Monetary Policy Committee lifting rates from a record-low 0.25 percent next month, they are fully pricing in another hike by August 2018."

06:22 EUR/USD - Bond market sending mixed signals, focus on the Spanish / Catalonia standoff

The EUR/USD pair fell to a 5-day low of 1.1775 in Asia on reports that US President Donald Trump was impressed with Stanford University economist John Taylor during an interview for Fed Chair. Taylor is widely believed to be more hawkish than Yellen.

US-German 10-yr yield spread rises

The spread or the difference between the US 10-year treasury yield and German 10-year bund yield currently stands at 192 basis points; the highest level since mid June. The widening of the spread adds credence to the drop in the EUR/USD pair.

However, the treasury yield curve (difference between the 10-year yield and the 2-year yield) fell to 76 basis points; the lowest level since August 2016. Flattening of the yield curve is dollar bearish.

On the surface, it does appear that the bond markets are sending mixed signals. As of now, the flattening of the yield curve is being overshadowed by  the widening of the US-German yield spread.

Looking ahead - Eyes will be on the Spanish/Catalonia standoff whereby the Spanish has given Catalonia until Thursday to drop their independence campaign. On the data front, German and Eurozone survey and US industrial production could move the market.

EUR/USD Technical Outlook

FXStreet Chief Analyst Valeria Benarik writes, "from a technical point of view, the pair has made little progress during the last two sessions, still trading in the red when compared to Friday's close. In the 4 hours chart, the price has managed to regain ground above a bearish 100 SMA, but still below the 20 and 200 SMAs, while technical indicators remain within negative territory, losing the limited upward strength they presented earlier today. The upward scope seems limited by selling interest on approaches to 1.1820, and seems there won't be today a trigger that can push the level beyond it. If it happens, however, the pair has scope to extend its gains up to the 1.1850 region. To the downside, the 50% retracement of the latest bullish run stands at 1.1775,  while the pair has a static support a few pips below the level, in the 1.1760 region. Below this last, the 1.1720 comes next ahead of the critical 1.1660 region."


05:41 IEA s Birol - With current policies, oil market may rebalance in 2018

Dr. Fatih Birol, Executive Director of the Paris-based International Energy Agency (IEA) says the oil market could rebalance in 2018 if the current policies (global output deal) are maintained, but warns that geopolitical factors may play spoilsport.

05:24 USD/JPY- Investors hedge against Japanese election risk

USD/JPY one-week risk reversals fell to -3.41 yesterday, its lowest level since May 1 while the one-week at-the-money option volatility rose to a 11-day high of 8.05.

The decline in the one-week risk reversals indicates that investors are hedging against the yen strengthening i.e. low cost out of the money (OTM) USD/JPY puts or JPY calls are in demand ahead of Sunday's Japanese elections.

There is widespread belief in the market that Abenomics weakened the Yen, thus a weak victory for Abe could put pressure on the USD/JPY (strengthen the Japanese Yen). Meanwhile, the new Kibo no To (Party of Hope) has said that it would work with the Bank of Japan (BOJ) on a smooth (QQE) exit strategy.

Hence, premium on the USD/JPY puts (risk reversals dropped) has jumped as investors hedge against Kibo no To's strong performance in the elections.

04:56 AUD/JPY dips below 88.00 after RBA minutes, risk reversal drop

AUD/JPY fell to a session low of 87.88 after the RBA minutes showed policy makers are in no rush to hike rates.

The minutes also talked about the disinflationary impact of the strong Aussie, low wage growth and subdued price pressures. The minutes also softened the language on the strong Aussie by adding the word "material" to its warning on the currency, however, the change in the language has gone unnoticed.

One week risk reversals drop, Vols pick up

The one-week 25-delta risk reversals fell to -2.20; the lowest level since September 8. Meanwhile, the one-week ATM volatility currently stands at 8.20; the highest since September 29.

The drop in the one-week risk reversals indicates out-of-the money JPY calls/AUD puts are in demand ahead of the Japanese elections.

AUD/JPY Technical Levels

A break below 87.84 (10-DMA) would open doors for 87.62 (50-DMA) and 87.25 (Oct 10 low). On the higher side, breach of resistance at 88.15 (session high) would open up upside towards 88.31 (Oct 13 high) and 88.48 (Sep 12 high).  



04:55 S&P: China is running unconventional monetary policy

The US ratings agency, Standard and Poor’s (S&P) is out with its take on monetary policy stance adopted by the Chinese central bank (PBOC).

Main Points:

China is running unconventional monetary policy

04:48 US, Japan fail to bridge gap on trade in economic talks - RTRS

Reuters out with the latest reports, citing that the US Vice President Mike Pence and Japanese Finance Minister Taro Aso failed to bridge the differences on issues of trade during economic talks on Monday. However, they agreed to cooperate on the North Korean nuclear risks.

Key Points:

“Japan agreed to streamline noise and emissions testing procedures for U.S. auto exports, while the two countries lifted trade restrictions on U.S. potatoes and Japanese persimmons.

But the United States and Japan remained at logger-heads on how to frame future trade talks with Tokyo pushing back against U.S. calls, made by Pence, to open up talks for a bilateral free trade agreement (FTA).”

04:40 Australias PM Turnbull announces National Energy Guarantee

Australia’s PM Turnbull is out on the wires now, via Reuters, announcing the National Energy Guarantee programme, which will deliver affordable and reliable electricity.

Key Details:

Reliability guarantee to ensure energy is always available

Emissions guarantee to contribute to Australia's international commitments

It’s meant to ensure ensuring energy retailers offer consumers a better deal

More gas for Australians before it's shipped offshore

Building Snowy 2.0 (expansion of pumped hydro capability within the Snowy Scheme) to stabilise the system

Stopping network companies gaming the system    

04:35 IEAs Birol: US shale output to match Iraq production in 7 years

Livesquawk reports comments from Dr. Fatih Birol, Executive Director, International Energy Agency (IEA), predicting that the US shale oil output will match Iraq production in seven years.


04:21 RBA s Ellis - Starting to see spill over effect from public infrastructure spending

Comments from RBA Assistant Governor Ellis crossing the wires via Reuters-

  • Starting to see spillover effect from public infrastructure spending onto non-mining private sector
  • Watching energy policy developments in Australia
  • Expect retail electricity prices will add to CPI in coming quarters
  • Electricity prices not a dominant factor in household spending, but will add to headline inflation

04:16 PBOC sets the Yuan reference rate at 6.5883

The People's Bank of China (PBOC) set the Yuan reference rate at 6.5883 vs. Monday's fix of 6.5839 

03:57 North Korean UN envoy says nuclear war may break out at any moment - Guardian

North Korea’s deputy UN ambassador has warned that the situation in the Korean Peninsular has reached "the touch-and-go point and a nuclear war may breakout at any moment".

North Korea deputy United Nations ambassador Kim In-ryong  said his country has the right to possess nuclear weapons in self-defense after being subjected to “such an extreme and direct nuclear threat” from the United States since the 1970s.

On Monday, Russian President Vladimir Putin said his nation was curtailing economic, scientific and other ties with North Korea in line with UN sanctions. Elsewhere, the European Union announced new sanctions on Pyongyang.


03:45 AUD/USD drops as RBA sees no reason to follow global rate hikes

AUD/USD fell to a session low of 0.7838 after the Reserve Bank of Australia (RBA) minutes showed the policy makers see no reason to follow global rate hikes.

The minutes said-

  • Rate change timing here dependent on local economic conditions 
  • Rate hikes abroad did not have "Mechanical" implications for Australian rates

The minutes also took note of the disinflationary impact of the strong Aussie dollar, subdued price pressures, low wage growth and spare capacity in the labor market.

Thus, AUD dipped across the board, although it could rebound if markets take into account the fact that the RBA has softened its language on the strong Aussie by adding the word "material" to its warning on the currency.

  • "A material further appreciation of the exchange rate would be expected to result in a slower pick-up in economic activity and inflation," the minutes showed

AUD/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "The technical picture is bullish as the pair settled above the 38.2% retracement of its latest slump from 0.8098. In the daily chart, indicators maintain sharp bullish slopes, entering bullish territory straight from oversold readings while the price settled above an anyway bearish 20 DMA. In the 4 hours chart, the price accelerated sharply above a now bullish 20 SMA, while technical indicators regain their upward strength within overbought readings.  The next Fibonacci resistance comes around 0.7920, with gains above it opening doors for a steeper recovery."


03:40 USD/CNY projection: 6.5965 - Nomura

Analysts at Nomura offered their model's projections for today's USD/CNY fix.

Key Quotes:

"Our model1 projects the fix to be 126 pips higher than the previous fix (6.5965 from 6.5839) and 53 pips higher than the previous official spot USD/CNY close of 6.5912. The basket implied change is 61 pips higher than the previous official spot USD/CNY close (6.5973 from 6.5912)."

03:37 RBA minutes: rate change timing here dependent on local economic conditions

The RBA minutes were released and the Aussie dropped a handful of pips with the minute not showing any surprises:

  • RBA removes high household debt mention in pol stance judgment 
  • Move to higher rate abroad has no direct implication here 
  • Economic conditions globally, locally more positive since 2016 
  • Asset valuations generally quite high 
  • Rate change timing here dependent on local economic conditions 
  • Further "Material" AUD rise wouldn't hurt economic activity, inflation 
  • Slow wage growth, high household debt could constrain spending 
  • Members noted policy had been eased significantly more in other advanced economies 
  • Judged steady policy consistent with growth and inflation targets 
  • Members discussed importance of risks in household balance sheets 
  • Rise in a$ driven by fall in us$, weighing on domestic inflation 
  • A "Material" further rise in a$ would result in slower pick-up in growth, inflation 
  • Increase in q2 gdp consistent with forecasts for gradual acceleration in growth 
  • Public infrastructure spending rising very strongly, last for a couple of years more 
  • Data pointed to subdued price pressures across economy in q2 
  • Liaison suggested firms absorbing higher energy prices into margins 
  • Recent strong jobs growth across states to support household incomes, spending 
  • Jobs gains had been well above level needed to absorb population growth 
  • Leading indicators pointed to slightly above-average job growth for rest of 2017 
  • Labour market still has spare capacity, wage growth to remain low for some time 
  • Housing markets had continued to ease in sydney and melbourne 

03:33 Australia New Motor Vehicle Sales (YoY) fell from previous 1.7% to -0.8% in September

03:33 Australia New Motor Vehicle Sales (MoM) down to -0.5% in September from previous 0%

03:29 USD/JPY: bears attempting to cap rallies on 112 handle

Currently, USD/JPY is trading at 112.24, up 0.06% on the day, having posted a daily high at 112.28 and low at 112.10.

USD/JPY is better-bid in the Tokyo open while there is a lack of volatility in the market and the dollar remains robust. There are plenty of risks ahead this week and the yen will trade in the broader theme of spreads and safe haven play while bears attempt to try cap rallies. 

Japan's Aso: Threat from N. Korea has heightened to levels never seen before

US 10yr treasury yields ranged between 2.28% and 2.30% before jumping to 2.31% and 2yr yields rose from 1.51% to 1.54%. The Fed fund futures yields firmed, now pricing the chance of a December rate hike at 87%. The US dollar index is 0.2% higher on the day, possibly forming H&S bottom.

USD/JPY levels

Meanwhile, Valeria Bednarik, chief analyst at FXStreet explained that in the 4 hours chart shows that the price remains near its daily low, trading within the 100 and 200 SMAs:

"Technical indicators are heading nowhere but within a negative territory, keeping the risk towards the downside for the upcoming sessions. The 111.60 level is quite a strong static support, with a break below it needed to confirm a steeper slide ahead, firstly towards 111.20, another relevant static support area," Valeria explained further.

03:15 PBOC should tighten monetary policy - China State Economist

Comments from Zhu Baoliang, economist at State Information Center crossing the wires via 21st Century Business Herald-

  • Monetary policy was "too loose" in the past and the PBOC should tighten monetary policy
  • No room for easing next year
  • Favors fiscal easing and strengthening of property controls



02:59 When are the RBA minutes and how could they affect AUD/USD?

RBA minutes overview

The RBA minutes are due today at 1230GMT after the RBA, as widely expected, left the official cash rate at 1.50% at its latest meeting, unchanged yet again. 

The RBA's October Statement was just as neutral in tone and it is unlikely that there would be a shift in tone from the Central Bank's outlook within the minutes. 

Analysts at TD Securities, however, suggested to look out for some of the inclusion of some "member discussion" about the main conclusions from the semi-annual Financial Stability Review.

How could the minutes affect AUD/USD?

AUD/USD has been under pressure to test below the 0.7850 mark with a daily close. However, the price is yet to reverse the traction that was found until a few pips below 0.7900. Therefore, on any bullish surprise or a hawkish hint within the minutes, the bulls are likely to take on 0.7870 resistance level just ahead of the 38.2% retracement currently at 0.7883. There is scope for recovery into the 0.7920/60 thereafter. To the downside, the 200 hourly SMA is located at 0.7809.

Key notes:

AUD/USD could re-test 0.7950 – UOB

AUD: 0.80 level an anchor point amid lack of catalysts - ING

About the RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

02:30 Two Catalan separatists have been taken into custody

According to BBC, Jordi Sánchez and Jordi Cuixart, two key members of the Catalan independence movement, are being held without bail while they are under investigation for sedition.

During the last days, Sanchez and Cuixart have been accused of encouraging protesters as they blocked officials from entering Catalonia's regional government offices on 20 and 21 September. Following the news crossed the wires, pro-independence supporters have now called for further protests, demanding their release.

As FXStreet Political Analyst remarks, the imprisonment of the leaders of two pro-independence civil organizations, accused of seditious acts, will make more difficult a political dialogue with Rajoy's government.

02:21 US key empire states data reviewed - Nomura

Analysts at Nomura noted that the New York Fed’s Empire State Survey reported healthy manufacturer sentiment in October.

Key Quotes:

"The general business conditions index increased 5.8pp to 30.2, the highest reading since September 2014. The new orders subindex remained elevated at 18.0, indicating steady momentum in the months ahead. Moreover, the shipments index increased to 27.5, the highest reading since October 2009. The number of employees index increased 5pp to 15.6, pointing to continued employment growth in the New York state manufacturing sector."

"The prices paid index moderated somewhat to 27.3, but remains elevated overall, indicating some upstream price pressure. Finally, the forward-looking general business conditions index for October increased 5.5pp to 44.8. Overall, today’s report is consistent with other strong readings from regional manufacturing surveys and points to sustained momentum to start Q4. We will receive more information about manufacturing activity in October with the Philly Fed survey’s release on Thursday."

01:22 NZ CPI first thoughts - Westpac

Analysts at Westpac's first thoughts on the NZ CPI data that arrived as follows:

  • NZ Consumer Price Index, September quarter 2017
  • Quarterly change: 0.5% (Westpac: 0.5%, market: 0.4%, RBNZ: 0.2%)
  • Annual change: 1.9% (Westpac: 1.9%, market: 1.8%, RBNZ: 1.6%)

Key Quotes:

Consumer prices rose 0.5% in the September quarter, in line with our forecast and slightly above the market median. The result was stronger than the 0.2% rise that the Reserve Bank forecast in its August Monetary Policy Statement. However, most of the difference was on the tradables side, which includes relatively volatile items such as food and fuel prices.

For now, inflation sits comfortably in line with the Reserve Bank’s target. However, there is little that suggests a risk of inflation breaking higher, particularly with the New Zealand economy seemingly entering a slower growth phase.

Tradables prices rose 0.2% for the quarter. Food prices rose by 1.1%, with vegetable prices edging back from a previous weather-related spike, but grocery prices picking up. Petrol prices rose strongly during the quarter, but they were still down by 1.7% on average. The disinflationary impact of the strong New Zealand dollar is waning, although the effects on import prices were mixed. Car prices were higher than we expected, but household goods prices were lower than forecast.

Non-tradables prices rose 0.7% for the quarter, a little stronger than we and the RBNZ expected. Looking at the details suggests that the surprise wasn’t widespread, with an element of government charges driving the move higher. Increases in alcohol excise duty, and the fire service levy on insurance premiums, had a larger effect on prices than we had assumed.

The annual inflation rate rose from 1.7% to 1.9%. A range of core inflation measures all told a similar story, with the annual rate either holding steady or ticking slightly higher, and sitting within a range of 1.7% to 2.0%. 

Market reaction:

The NZD/USD rose 1/3 of a cent on the result. There was no reaction on interest rate markets.

01:20 NZD/USD back below the 0.72 handle post CPI knee-jerk spike

Currently, NZD/USD is trading at 0.7190, up 0.26% on the day, having posted a daily high at 0.7212 and low at 0.7167.

New Zealand Consumer Price Index (YoY) came in at 1.9%, above expectations (1.8%) in 3Q

NZD/USD has settled back below the 0.72 handle after the initial CPI spike to the aforementioned highs. The CPI data was for Q3 and arrived at 0.5% q/q vs the expected 0.4%. This came in substantially higher than the RBNZ forecasts. However, markets are also watching out for the NZ government formation announcement to watch out for.

New Zealand Consumer Price Index (QoQ) came in at 0.5%, above forecasts (0.4%) in 3Q

NZD/USD 1-3 month:  

"If the RBNZ remains firmly on hold, as we expect, and the US dollar rises on a delivery of a Fed interest rate rise in December, then NZD/USD could fall to 0.70 by year end," argued analysts at Westpac.

NZD/USD levels

The bird really needs to get through 0.7240 to confirm that a significant correction of the 20th Sep highs is in place - a subsequent break of there could open doors towards 0.7315. 

0.7370 (the 9th Aug high) is the next key hurdle on the upside and a break there would solidify a bullish trend back towards 0.7522 and the YTD highs so long as there are closes on the 0.74 handle and beyond the post FOMC kneejerk highs of 0.7434. To the downside, 0.7052, a 19-week low, guards the psychological 0.7000 level to target 0.6908, 11th April low. 

00:56 Financial markets traded sideways overnight - ANZ

Analysts at ANZ noted that the financial markets traded sideways overnight with equities marginally higher, treasury yields bear flattening, and the USD mixed against the G10.

Key Quotes:

"With a plethora of central bank speakers over the weekend, the market took Monday to digest their views.

Yellen continued to view the slowdown in inflation as temporary and continues to believe in a gradual rate hike path, sending front-end yields a little higher today. US 2 year yields rose 3bps to 1.53% and 10-year yields were up 2bps to 2.29%.

Yields in Europe fell 3 (France, Germany, UK) to 5 (Spain, Italy) bps.

The US survey data (Empire Manufacturing) to kick off the October dataflow had a firm headline, but underlying details were a little softer. European bourses were little changed with Spain’s issues kicked down the road, while in the US equities were up 0.1-0.3%. GBP fell on reports that the Brexit negotiations are heading for a breakdown unless the EU signals compromise.

Oil lifted more than 1% as military moves in Kirkuk raised fears of supply disruption. Copper lifted to a 3-year high and palladium to a 16-year high. Gold has been steady trading just above USD1300/oz." 

00:46 New Zealand Consumer Price Index (YoY) came in at 1.9%, above expectations (1.8%) in 3Q

00:46 New Zealand Consumer Price Index (QoQ) came in at 0.5%, above forecasts (0.4%) in 3Q

00:24 AUD/NZD: risks are to the downside - Westpac

Analysts at Westpac offered their outlook for the Antipodean cross and rates.

Key Quotes:

"AUD/NZD 1 day: Yesterday’s technically bearish reversal pattern tilts risks to the downside for the day ahead, although there is plenty of AU and NZ event risk on the day.

AUD/NZD 1-3 month: September’s downward correction should give way to a resumption of the trend rise which started in June, and test 1.12, contingent on AU commodity prices recovering and risk sentiment remaining elevated. (4 Oct)

AU swap yields 1 day: The 3yr should open around 2.15%, the 10yr around 2.93%.

AU swap yields 1-3 month: Our RBA outlook (on hold throughout 2018) is anchoring short-maturity interest rates and should keep 3yr swap rates in a 1.80% to 2.30% range, as long as core inflation remains below 2%. Longer maturity rates will largely follow US rates. (4 Oct).

NZ swap yields 1 day: NZ 2yr swap rates should open up 1bp at 2.19%, the 10yr up 1bp at 3.20%, in response to AU and US interest rates movement overnight.

NZ swap yields 1-3 month: Our RBNZ outlook (on hold throughout 2018) is anchoring short-maturity interest rates and should keep 2yr swap rates in a 2.10% to 2.50% range, as long as inflation remains below 2%.  Longer maturity rates will largely follow US rates. (4 Oct)"

00:04 Forex today: dollar firmer on the macro news wires

Forex today was mixed with some headlines grabbing the attention and causing a bit of a stir in sterling and the dollar.

For the dollar, it was mostly political with a hint of the Fed. There were mixed rumors around US and N.Korean diplomats moving towards talks that were initially supportive of the dollar, but that seemed to fall apart along the same news wire. US yields popped on the idea that John Taylor could become the next Fed chairman who is second place behind Powell in the betting markets. Yellen was bullish at the IMF today, reported to be saying that low inflation will not persist. subsequently, this underpinned the dollar's strength. At the same time and in the same consequence, Trump alluded to an economic development bill.

US 10yr treasury yields ranged between 2.28% and 2.30% before jumping to 2.31% and 2yr yields rose from 1.51% to 1.54%. The Fed fund futures yields firmed, now pricing the chance of a December rate hike at 87%. The US dollar index is 0.2% higher on the day, possibly forming H&S bottom.

The euro was caught between a 1.1780 and 1.1820 range but pressured was by the Austrian election threatening the EU status quo. Catalan leaders failed to clarify their stance on independence, while the Spanish have given them until Thursday to drop the campaign. 

Cable was lower on the back of speculation that Brexit talks were breaking down ahead of the EU summit on Thursday, falling from 1.3311 to 1.3225. USD/JPY held the 200 DMA for another day and popped to test the 100-D SMA at 112.16 with a lack of commitment from the bears below 111.65. The antipodeans struggled with a firm greenback even after a strong move in metals, with copper exploding to its highest in more than three years on an expanding macro theme. AUD/USD held at 0.7843 and the Kiwi at 0.7161. 

Key events ahead

Analysts at Westpac offered the key events for the forthcoming Asian session:

"NZ: Q3 CPI is expected to rise 0.4%, for an annual pace of 1.8% (Westpac estimates 1.9%, RBNZ 1.6%). This will be mainly due to temporary effects such as food and fuel.

Australia: The RBA minutes are released and will provide the Board’s opinion on the key topics of housing, jobs and the consumer. RBA Assistant Governor Ellis participates on a panel at the Australia & New Zealand Investment Conference.

Key notes from US session

  • Catalonia doesn’t plan to respond to govt demand on Thursday - TV3
  • Wall Street ends day at all-time highs led by financials and energy
  • Market wrap: dollar slightly higher with a lack of catalysts - Westpac
  • John Taylor "impresses" Donald Trump for Fed chairman - BBG
  • North Korea rejects diplomacy with US for now - CNN
  • Fed communications in the spotlight - UOB
  • US Pres. Trump: Total termination of Iran nuclear deal is a very real possibility
  • US: More (positive) surprises in store? - ING
  • NY Fed: Business activity grew at a robust pace in New York State

Back to Traders' Board

Filter News by pairs:

EUR icon USD icon
GBP icon USD icon
USD icon CHF icon
AUS icon USD icon
NZD icon USD icon
USD icon CAD icon
USD icon JPY icon
EUR icon GBP icon
GBP icon JPY icon
GOLD icon

Data source: FX Street
Disclaimer:This material is provided by FXStreet as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information presented here.