Global overview
FX markets were quieter than usual with the US closed for the Thanksgiving holiday. The kiwi outperformed. Tonight, all eyes are on the US PMI numbers.
USD lower in quiet, Thanksgiving session
The greenback drifted lower overnight with US markets closed for the Thanksgiving public holiday.
The New Zealand dollar was the largest beneficiary overnight with the NZD/USD up 0.5%.
The Australian dollar was helped by a small improvement in some key purchasing manager index (PMI) numbers with a pickup in German manufacturing activity – up from 40.8 to 42.3 – most notable.
The AUD/USD gained 0.3%.
The US dollar continues to be pressured as US bond yields ease on hopes the US Federal Reserve is near the end of its rate-tightening cycle. Tonight, US PMIs are due.
RBA’s Bullock: “Getting inflation back to target will take time”
In a speech this week, Governor of the Reserve Bank of Australia Michele Bullock said that it would take time to get inflation back to goal. She noted that although it took three quarters to bring inflation down from 8% to 5.5%, it will take an additional two years to bring inflation down to below 3%. Bullock said that rather than focusing just on 3% inflation, the central bank would seek to achieve a goal of 2-3%.
Bullock also said that for the next one to two years, inflation would continue to be a major obstacle for the economy. Earlier this month, the central bank started raising interest rates again in an effort to control inflation expectations. Bullock pointed out that given continued and underlying demand, inflation was not simply about supply concerns like fuel and rent; it would be problematic if inflation expectations rose in response.
Bullock emphasized that Australia has not seen an increase in production for a period of years. During a Tuesday morning panel discussion in Melbourne, Bullock expressed their growing optimism on the labor market, stating that the advancements in employment are expected to be maintained.
Along with Chinese equities and industrial commodities, AUD/USD has been under pressure through most of 2023. That said, the pair has spent June-Nov 2023 trying to form a base pattern in the lower end of the 2022-2023 range and above support of 0.6170 Oct 2022 trough. The next resistance will be at 0.659 June low.
Malaysia CPI due
In October, we anticipate CPI inflation to be steady at 1.9% year over year. Prices for food are starting to decline, especially for chicken eggs, onions, and red chilies, but core inflation is probably going to increase slightly from 2.5% to 2.6% in accordance with a minor acceleration of domestic demand.
Despite being inexpensive according to our FX valuation models and a long-term potential winner due to supply-chain diversification and semiconductor decoupling, the currency is still being hampered by corporates’ poor FX conversion ratio.
NZD strongest overnight
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 20 – 25 November
All times AEDT
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