The Aussie hit 10-month lows last week but is finding a little support to start this week as the greenback falters. Australia’s jobs data will be closely watched but US CPI dominates the global calendar.
AUD/USD last week printed a low since November 2022 at 0.6357 but has showed glimmers of stability in recent sessions. It has been able to steady around 0.6400 despite the Chinese yuan falling to lows since 2007 against the US dollar, at 7.34 for the onshore yuan, 7.36 for the Hong Kong-traded yuan, (CNH).
The yuan fell every day last week but is starting this week on track to snap its losing streak. If China’s central bank – backed by US$3.2 trillion of FX reserves – is now looking to stabilise the yuan, it should be helpful for the Aussie’s tentative stabilisation. Still, China’s August activity data due Friday is not expected to inspire optimism over China’s economy.
The RBA has generally been less hawkish than over major central banks during the post-pandemic global tightening cycle. This remains the case following the RBA’s September meeting. The RBA repeated that “some further tightening of monetary policy may be required” but also introduced a new note of caution about China’s economy. Rates markets price around 40% chance of another rate rise.
Australia’s Q2 GDP data didn’t have a noticeable impact on the Aussie or interest rate expectations. The economy grew by a subdued 0.4%qtr, 2.1%yr. GDP per capita contracted -0.3% as population growth helped avoid a headline recession. Consumer spending was broadly flat but business investment was a positive surprise, increasing by 2.1%.
This week’s Australian data calendar remains worth watching, kicking off with September Westpac consumer sentiment and August NAB business confidence. Most market sensitive is the August labour force survey. After a surprising -15k dip in employment in July, a rebound is expected, Westpac on +40k, the median forecast +25k. We expect the unemployment rate to edge down to 3.6%. A surprise on the strong side might not have a big impact on the Aussie but a weak number would stoke talk of when the RBA might start cutting rates.
The global calendar focus this week is US August CPI. A rebound in gasoline prices is expected to push up annual inflation to 3.6% from 3.2%yr but CPI ex-food and energy will be key. Consensus is 4.3%yr versus 4.7%yr in July, the reading just a week ahead of the Fed policy meeting.
The Aussie cross rate with most at stake this week is probably AUD/EUR, with the ECB’s policy decision not at all clear. Markets price a 40% chance of another hike, to 4.00% deposit rate, while economists are split 26 to 23 in favour of no change in the Bloomberg survey. There is also the risk that ECB President Lagarde’s press conference sends the euro in a different direction from the initial response.
Event risk
Aust Sep Westpac consumer sentiment, Aug NAB business confidence, NZ Pre-election fiscal update, UK Jul unemployment and wages (Tue), UK Jul GDP, US Aug CPI (Wed), Aust Aug employment, ECB policy decision, US Aug retail sales (Thu), China Aug retail sales, industrial production, fixed asset investment, US Sep University of Michigan consumer sentiment, Sep NY Fed Empire State manufacturing survey (Fri)
