The Aussie and Kiwi Dollar Rally as U.S Treasury Yields Ease Back

Economic data out of Asia give the Aussie and Kiwi Dollars some respite early in the day, while geo-political risk remains the key area of focus.
Bob Mason

Earlier in the Day:

Economic data released through the Asian session this morning included September electronic card retail sales figures out of New Zealand, October consumer sentiment figures out of Australia and August machinery orders out of Japan.

For the Kiwi Dollar, electronic card retail sales rose by 1.1% in September, following an upwardly revised 1.1% rise in August, according to Stats NZ.

  • Spending in the retail industries rose by 1.1%, with spending in the core retail industries also rising by 1.1%.
  • By industry, spending on consumables rose by 1%, on apparel by 0.9%, on durables and vehicles (excl. fuel) both by 0.8%, with 0.4% rises in spending on hospitality and on fuel.
  • Year-on-year, electronic card retail sales rose by 5.7%, easing back from a 6.3% rise in August.
  • For the 3rd quarter (q/q), spending in the retail industries rose by 2.3% and by 2.1% in the core retail industries.
  • In the 3rd quarter, the largest contributions to spending came from fuel (+3.4%), consumables (+2.4%), while spending on apparel dragged, with just a 0.1% rise.

The Kiwi Dollar moved from $0.64713 to $0.64760 upon release of the figures, before rising to $0.6487 at the time of writing, up 0.20% for the session.

For the Aussie Dollar, the Westpac Consumer Sentiment rose by 1% to 101.5 in October, the rise partially reversing September’s 3% slide to 100.5.

  • Negative sentiment towards falling house prices, rising mortgage rates and rising petrol prices had offset the positive effects of a tax cut earlier in the year, leading to a 5.2% fall in confidence in August through September.
  • Support at the start of the 4th quarter came from solid economic growth, labour market conditions and a recovery in certain mining states.

Looking at the key sub-indexes:

  • Family finances v a year ago rose by 2.6% to 87.4, sitting just shy of a long-run average of 89.5.
  • Family finances next 12-months rose by 0.6% to 102.8, sitting well below a long-run average of 102.8.
  • Economic conditions over next 12-months rose by 2.3% to 102.5, holding well above the long-run average of 90.8.
  • Economic conditions over next 5-year fell by 0.3%, with time to buy a dwelling falling by 0.9% and the house price expectations index down 7.4%, the housing sub-indexes sitting well below their respective long-run averages.
  • The unemployment expectations index rose by 1.7% to 122.8, also sitting below its long run average of 130.1.

The Aussie Dollar moved from $0.71091 to $0.71152 upon release of the figures, holding steady at $0.7115 at the time of writing, up 0.17% for the session.

For the Japanese Yen, August machinery orders rose by 6.8% in August, month-on-month, which was better than a forecasted 4% fall, following an 11% surge in July.

  • Year-on-year, machinery orders surged by 12.6%, which was also better than a forecasted 1.6% rise, following the 13.9% jump in July.

The Japanese Yen moved from ¥113.018 to ¥112.981 against the Dollar upon release of the figures, before easing to ¥113.02 at the tie of writing, down 0.05% for the session.

The Day Ahead:

For the EUR, there are no material stats scheduled for release to provide direction for the EUR, the EUR facing rising geo-political risk as the Italian coalition government look to force the EU’s hand on its budget proposal that looks set to be rejected, which could lead to similar rhetoric as seen back in 2015, when Greece’s Alexis Tsipras led the populist Syriza government into power.

At the time of writing, the EUR was up 0.16% to $1.1509, as Treasury yields steady to pin back the Dollar, while geo-political risk remains the key driver through the day.

For the Pound, it’s a busy day ahead on the data front, with key stats scheduled for release including August industrial production and manufacturing figures, August trade data and the NIESR’s monthly GDP Estimate.

While focus will be on the manufacturing production and GDP figures, we can expect sentiment towards Brexit to continue to overshadow the stats near-term, barring material deviation from forecasts, a “no-deal” Brexit of far greater significance than any pickup in economic activity mid-way through the 2nd quarter.

On the policy front BoE MPC Member Haldane is scheduled to speak, who could provide some guidance on where the bank sits on policy as Brexit negotiations continue, though the markets would need something unexpected for the Pound to really move.

At the time of writing, the Pound was up 0.09% to $1.3155, with today’s stats and Brexit chatter to influence through the day.

Across the Pond, economic data scheduled for release is limited to September wholesale price inflation figures that will have an impact on both the Dollar and U.S Treasury yields, particularly if the numbers are in line with or better than forecasted, the markets already fretting over a possibly more aggressive rate path as the unemployment rate hits a 49-year low and the economy continues to rocket along in spite of the ongoing trade war with China.

Outside of the stats, FOMC members Williams spoke through the Asian session, supporting the FED’s projected gradual rate hikes, while providing few details on timing and number of moves.

Later in the day, FOMC member Evans is scheduled to speak, any monetary policy commentary expected to provide some direction, though we would expect the inflation figures to have a greater influence.

As always, the Oval Office will also be every present to influence through the day, the Dollar Spot Index down 0.09% to 95.585 at the time of writing, an easing in U.S Treasury yields pinning back the Greenback early on.

For the Loonie, economic data scheduled for release out of Canada is limited to August building permits that are unlikely to have a material impact on the Loonie, with market risk sentiment through the day and anticipated demand for crude oil the key drivers, market jitters over the effect of the ongoing trade war on the global economy adding pressure on the Loonie following the closing out of USMCA.

The Loonie was up 0.02% at C$1.2943 against the U.S Dollar at the time of writing.

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