Written by Steven Dooley, FX & Macro Strategist – APAC
Global overview
The greenback turned sharply overnight. US bond yields drove the reversal as the ten-year bond yield fell from 16-year highs. The AUD/USD gained 0.4%. The NZD/USD gained only 0.1% as the kiwi underperformed after the Reserve Bank of New Zealand kept interest rates on hold.
Most notably, European FX markets rebounded, with the GBP/USD in focus ahead of tonight’s construction reading.
USD reverses after monster rally
The US dollar’s super-sized rally took a breather overnight as US bond yields reversed from 16-year highs.
The move in the US bond markets – and the associated move in the US dollar – was stretched with measures of momentum like the relative strength index (RSI) in both markets reaching an extreme.
Another measure of momentum is the USD’s performance versus other markets. Since July, the US dollar is higher versus 90% of currencies – the strongest relative performance in over 25 years.
UK data to test pound weakness
The UK economy is in focus today with September UK PMI construction survey due. While activity has remained strong in the commercial and civil engineering sectors (particularly around 50), it has declined significantly in the housing sector, with the index reaching just over 40 in August.
Clearly, the sector’s building activity is being significantly impacted by the deteriorating housing market. Overall, new construction orders (excluding Covid) declined to their lowest level since the end of 2019 (Source: Office for National Statistics) with current input prices growth also slow.
The market expects the September UK PMI construction survey to be 49.9, down from the previous 50.8.
US jobs data key this week
The US jobs market will likely drive market sentiment into the close of the week as we head towards Friday’s non-farm payrolls.
Tonight, we have US Jobless claims. This week’s jobless claims suggested that labor markets would continue to be resilient. In Michigan and Ohio, the UAW strike led to modest improvement; however, this was countered by more general reductions.
Due to recent layoffs in the auto industry, we anticipate claims to increase as the UAW strike goes on.
USD turns from highs, Aussie rebounds
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 2 – 6 October
All times AEST
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