Global overview
Financial markets near the end of November in a buoyant state with equities higher, bond yields falling, and volatility nearing post-pandemic lows. The Aussie and kiwi remain the best performing FX markets. This week, US consumer confidence, New Zealand’s interest rate decision and Chinese PMI numbers will be the highlights.
US dollar down for another week
The US dollar ended the week near its lows with the pair down for the third week in four.
The USD index fell 0.4% over the week to finish near three-month lows.
Growing expectations that the US Federal Reserve has finished hiking interest rates has been the key driver in financial markets in November with the benchmark S&P 500 up 8.6% so far this month and the US ten-year bond yield falling from 4.93% to 4.48% over the same period.
In FX markets, the New Zealand and Australian dollars have been the largest beneficiaries.
The NZD/USD is up 4.5% in November while the AUD/USD is up 4.0%.
This week, US consumer confidence, New Zealand’s interest rate decision and Chinese PMI numbers will be the major economic releases.
Crude oil’s losses near extreme
Crude oil has weakened substantially over the last two months – down 20% since 28 September – but the recent falls might have reached an extreme. The Organization of Petroleum Exporting Countries (OPEC) will find these price falls uncomfortable and might look to restrict supply which may cause the price of oil to spike to as high as $120 per barrel.
The global economy would slow significantly next quarter if this happens over the next few weeks and was solely due to supply restrictions.
That said, for the last two years, the USD has been more bullish than bearish if the price of oil price has risen as a result of a supply constraint shock.
Since the US is currently a net oil producer and has boosted Strategic Petroleum Reserve (SPR) releases over the past two years, the global supply restriction has benefited the USD. This may also bode well for the CAD and NOK.
CNY supported as property market sees glimmer of hope
In China, after a gloomy 18 months, the outlook for Chinese property markets might turn more favorable due to accommodative government regulations and incentives.
On November 23, Bloomberg published further information on potential industry support, centered around funding for financially troubled private and state-owned enterprises. Chinese authorities are reportedly compiling a list of 50 developers qualified for various forms of funding, according to Bloomberg.
More private and state-owned developers would feel more secure with the new roster, which would build on earlier lists made by banks that only highlighted a small number of “systemically important” state-backed companies. The top financial authorities instructed China’s largest banks, brokerages, and distressed asset managers to satisfy any “reasonable” financing demands from real estate companies. In terms of financing, financial institutions were also required to “treat private and state-owned developers the same.”
Even though concrete evidence is still lacking, we believe the Chinese government will keep giving the real estate industry first priority.
Our risk bias on CNY is more positive for the month of November 2023. Corporate USD selling flows tend to pick up towards year-end/pre-Chinese New Year season and support seasonal strength in CNY FX.
Aussie, kiwi at new highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 27 November – 2 December
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
