• Michael Moran, Senior Currency Strategist at ACY


• 01.11.2021 10:15 am
#stocks

AUD Threatened Even as RBA Prepares to Tighten, DXY Climbs

Summary: China’s Manufacturing PMI in October shrank more than expected to 49.2 against analyst’s median forecasts at 49.7 and lower than September’s 49.6. The official Purchasing Manager’s Index data was released yesterday (Sunday, 31 Oct) by China’s National Bureau of Statistics. The Australian Dollar (AUD/USD) closed at 0.7520 from 0.7542 on the back of broad-based US Dollar strength. In early Asian trade, the Aussie Battler edged lower to 0.7513. On Friday the Dollar Index (USD/DXY), which measures the Greenback’s value against a basket of 6 major currencies, soared 0.85% to 94.13 (93.36). US Core PCE (Personal Core Expenditure) Price Index was up 0.2% for the month, in line with expectations. In annual terms the rise was 3.6%, unchanged from the previous month but still the highest read since May 1991. The beleaguered Euro, already under selling pressure on Thursday, tumbled 1.14% lower to 1.1562 from 1.1680. Sterling slumped to 1.3692 (1.3788). Against the Yen, the Dollar closed at 114.00 (113.58). Japan’s conservative ruling LDP retained its majority in parliamentary elections held yesterday. Prime Minister Fumio Kishida survived the test he himself had called due to perceptions his government mishandled the Covid-19 pandemic. The Dollar advanced against the Asian and Emerging Market currencies. USD/CNH (Dollar-Offshore Chinese Yuan) rallied to 6.4055 from 6.3880 while USD/THB (Dollar-Thai Baht) was last at 33.27 (33.17). The US Dollar/Singapore Dollar (USD/SGD) pair soared to 1.3485 (1.3440 Friday).
The US 10-year treasury bond yield settled at 1.55% (1.57%). Germany’s 10-year Bund Yield closed at -0.11% (-0.14%). Australia’s 10-year treasury bond yield soared to 2.08% (1.83% Friday).
Wall Street stocks closed with modest gains. The DOW rose to 35,852 (35,767) while the S&P 500 settled at 4,610, up 0.46%.
Data released Friday saw Japan’s Preliminary September Industrial Production slide to -5.4% from August’s -3.6%. The BOJ’s Tokyo Core CPI eased 0.1% in October from forecasts at 0.3%, matching a previous 0.1%. Japanese Consumer Confidence for October dipped to 39.2 from 37.8. Australia’s September Retail Sales rose 1.3%, beating forecasts at 0.4%, and a previous -1.7%. Australian Q3 PPI was up 1.1%, higher than estimates at 0.6%. Switzerland’s KOF Economic Barometer climbed to 110.7, higher than estimates at 108.2. Germany’s Preliminary Q3 GDP was up at 1.8% from a previous 1.6%, but lower than estimates at 2.2%. Canada’s October (m/m) GDP missed estimates at 0.7%, slipping to 0.4%. US Core PCE Price Index in October matched forecasts at 0.2%. US Personal Income fell to -1.0% missing forecasts at -0.2%. Chicago PMI rose to 68.4 from 64.7, higher than expectations of 63.6. Revised University of Michigan Consumer Sentiment was at 71.7 from 71.4.

• EUR/USD – The shared currency extended its slide, to finish at 1.1562, down 1.14% (1.1680 Friday). Broad-based US Dollar strength due to month-end demand weighed on the Euro. Overnight the EUR/USD pair tumbled to a low at 1.1535 before stabilising.
• AUD/USD – slip-sliding away. The Aussie Battler fell to 0.7520 in late New York, from its 0.7540 Friday opening. In early Asian trade, following the release of weaker-than-expected Chinese Manufacturing PMI, AUD/USD was trading at 0.7516. Overnight low was 0.7499.
• USD/JPY – The Dollar rallied to close at 114.00 in New York on Friday from its 113.58 open. Following the outcome of the Japanese parliamentary elections held yesterday, USD/JPY was up at 114.10 in early Asia. Overnight low traded was at 113.39.
• USD/SGD – Against the Singapore Dollar and other Asian EM currencies, the Greenback advanced. The USD/SGD pair soared to close at 1.3485 from 1.3440. In early Asia, USD/SGD soared to a high at 1.3511 before settling at its currency 1.3497.

On the Lookout: The Dollar Index finished October on a strong note, extending its advance against all its Rivals, to varying degrees. Month-end demand was probably a contributing factor, but the Greenback looks set for further gains. The week ahead will provide further clues. The big event is the Fed’s FOMC meeting and rate announcement (Thursday, Nov 4, 5 am Sydney). Australia’s RBA meets on policy tomorrow (Tuesday, Nov 2, 2.30 pm Sydney). The Bank of England has its monetary policy meeting on Thursday, Nov 4 (11 pm Sydney). In terms of data, Friday (November 5) is US Payrolls Day. Today kicks off with Australia’s Commonwealth Bank October Manufacturing PMI (f/c 57.3 from 57.3). Australia’s ANZ Job Ads for October (no f/c, previous was -2.8%) and September Home Sales (f/c -2% from -6.6%) follows. Japan releases its October Jibun Bank Manufacturing PMI (f/c 53 from 53). China follows with its October Caixin Manufacturing PMI (f/c 50 from previous 50). Europe kicks off with Germany’s September Retail Sales report (m/m f/c 0.6% from 1.1%, y/y f/c 1.8% from 0.4% - ACY Finlogix). The UK releases its October Manufacturing PMI (f/c 57.7 from 57.1 – ACY Finlogix). Canada starts off North America with its October Markit Manufacturing PMI (f/c 57.2 from 57.0). The US releases its October Markit Manufacturing (f/c 59.2 from 60.7) and ISM Manufacturing PMI (f/c 60.5 from 61.1 – ACY Finlogix).

Trading Perspective: Ahead of this week’s Federal Reserve FOMC meeting and US Payrolls report, the Greenback should keep its overall bid. Net speculative long US Dollar bets have increased. This will slow any potential sharp Greenback gains. The fall in China’s factory activity reported yesterday was more than expected will weigh on the Australian Dollar and risk currencies. China releases its Caixin Manufacturing PMI for October today (12.45 pm Sydney). Expectations are for an unchanged number at 50. Anything less, or under 50 would suggest a contraction and further weigh on risk sentiment and currencies. Tomorrow’s RBA meeting amidst the holding of the country’s annual Melbourne Cup will be huge. Market analysts are evenly divided as to whether the RBA adjust its policy. ACY Chief Economist Clifford Bennett and the CBA have forecast rate increases in 2022. It’s hard to argue against that case. We can certainly look forward to a choppy week ahead. Happy days.

• AUD/USD – The Aussie Battler slipped to 0.7520 from 0.7542 on Friday. Broad-based US Dollar strength weighed on the AUD/USD pair. This morning in early Asia, the AUD/USD pair opened slightly lower at 0.7516, and currently trades at 0.7513. We can expect a further drift lower to its initial support at 0.7500. The next support level lies at 0.7480 and 0.7460. On the topside, immediate resistance can be found at 0.7540 and 0.7560 (overnight high at 0.7555). Likely range today 0.7470-0.7540. Prefer to sell rallies.

(Source: Finlogix.com)

• EUR/USD – The shared currency extended its slide against the Greenback to close 1.14% lower at 1.1562. On Friday, the Euro opened at 1.1680 after a strong rebound in Europe after comments from ECB President Christine Lagarde on inflation. Broad-based US Dollar strength and the market’s overall bearish sentiment on the shared currency continue to drive the EUR/USD lower. Immediate support lies at 1.1535 (overnight low) followed by 1.1500 and 1.1470. Immediate resistance can be found at 1.1590 and 1.1620. The next resistance lies at 1.1650. Look for a likely trading range today of 1.1530-1.1630. Cautious about getting too bearish, or short near current levels. Speculative shorts are building.
• USD/JPY – The US Dollar rallied against the Yen to 114.00 from 113.58. Japan’s parliamentary elections saw the ruling LDP defy expectations and hold on to power. This will enable PM Kishida to ramp up stimulus. USD/JPY should get further support from the result. Immediate resistance for today lies at 114.10 (overnight high). The next resistance level is found at 114.40, and 114.80. Immediate support can be found at 113.75, 113.45 (overnight low traded was 113.39). Look for the USD/JPY to trade a likely range today of 113.80-114.40. The preference for today is to buy USD/JPY dips.
• USD/SGD – we look at the US Dollar vs Singapore Dollar pair today, which influences the USD/Asian and EM currencies. Overnight the USD/SGD pair rallied to close at 1.3485 from 1.3440 on Friday. Overnight high traded was at 1.3500, which is today’s immediate resistance. The next resistance level lies at 1.3530 followed by 1.3560. On the downside, we can find immediate support at 1.3450 and 1.3430. The next support level lies at 1.3400. Immediate resistance can be found at 1.3510 (overnight high was at 1.3500). The next resistance level is found at 1.3530. Look for consolidation in a likely trade today of 1.3470-1.3520. Preference is to buy dips, weaker Chinese economic data risks lower Asian currencies against the Greenback.