Written by Steven Dooley, head of Market Insights
Global overview
The greenback was higher as geopolitical worries saw investors move into safe havens. US shares were also weaker. These worries meant that a boost from stronger Chinese data yesterday was short lived. Fed chair Jerome Powell speaks tonight.
Geopolitical tensions pressure markets
Global sharemarkets fell and the US dollar was higher as tensions continued to escalate in the Middle East.
The US’s S&P 500 fell 1.0% while the Nasdaq dropped 1.5%.
In FX, the US dollar gained, with the USD index near two-week highs.
The AUD/USD fell 0.4%. The NZD/USD lost 0.7% to hit new 11-month lows.
Chinese GDP boosts, but gains short lived
Initially, markets were higher yesterday after a stronger report from Chinese September-quarter GDP. Annualised GDP was up 4.9% versus the 4.4% expected as exports improved.
However, with the overnight worries boosting the USD, the USD/SGD ended 0.4% higher while the USD/CNH ended 0.1% higher.
Similarly, exports have improved in South Korea with the Bank of Korea (BOK) due today. The BOK looks likely to maintain the policy rate at 3.5% despite the fact that exports are strengthening and domestic activity is still a drag on GDP growth. Although increasing oil and food prices caused a strong increase in inflation in September, the BOK still expects to gradually reach its price stability objective, signaling less worry about inflation.
Governor Rhee is expected to emphasize that the course of monetary policy may diverge from the Fed, which has chosen to pursue a higher-for-longer approach. Additionally, he’ll probably stress that stabilizing household debt is a long-term policy goal, indicating that the BOK is unlikely to utilize monetary policy to reduce family debt. Finally, we anticipate that the BOK’s dot plot will stay at 3.75% with the possibility of increasing it again.
Powell speech due
US jobless claims are released tonight. Last week, initial claims were muted, while continuing claims increased to a six-week high, signaling a slowing in net hiring. Although the UAW strike hasn’t had much of an effect on claims so far, we anticipate that as long as the strike goes on, claims will gradually increase.
But the big event tonight will be from the US Federal Reserve. Jerome Powell speaks as expectations for further rate hikes grow – currently at 40% for a December hike according to Refinitiv – and the benchmark US ten-year bond yield climbs to a 16-year high of 4.91%.
Powell speaks at the Economic Club of New York. Overnight, the Fed’s Beige Book survey signaled the US economy was relatively unchanged over the last month.
USD gains on safe-haven moves
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 16 – 20 October
All times AEST
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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.
