Written by Steven Dooley, Head of Market Insights
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Global overview
Hopes for more positive commentary from the Federal Reserve were dashed overnight with chair Jerome Powell saying the strong US economy might require further rate hikes to ease inflation. In a volatile night of trading, the benchmark US ten-year bond yield neared the key 5.00% level. The Aussie and kiwi underperformed.
Financial markets weaken as ten-year bond yields nears 5.00%
Financial markets remain pressured and commentary from Federal Reserve chair Jerome Powell didn’t help as the world’s most watched central banker said the ongoing strength in the US economy and tight labour markets mean the Fed might be forced to raise rates further.
This week’s US data broadly confirmed this view with retail sales and industrial production both sharply higher.
While short-term US bond yields eased after an initial push higher, the key 10-year bond yield jumped from 4.90% to 4.99% — the highest levels since August 2007.
US shares extended recent losses with the S&P500 down 0.8% and the Nasdaq down 0.9%.
The greenback was mostly stronger across Asia but did ease from earlier highs.
The AUD/USD fell 0.1% while the NZD/USD lost 0.2%. The USD/SGD and USD/CNH were both broadly flat.
INR climbs from all-time lows
Reserve Bank of India minutes are due today with the Indian rupee recently hitting all-time lows versus the US dollar, but the currency rebounded overnight. Governor Das and Deputy Governor Patra, who are expected to emphasize the upside risks to inflation, the need to move inflation closer to the 4% objective, and promising economic prospects, are likely to reiterate their hawkish stance at the RBI’s policy meeting in October.
The three external members at the August policy meeting emphasized concerns about the economic prospects by suggesting that further tightening was not necessary. It will be interesting to observe whether these growth issues persist and to get any feedback on the proper real rate levels. The market will closely watch any variation from the ideal liquidity level and the Open Market Operation sales decision.
The Indian rupee has been heavily sold over the last three months with the currency recently falling to all-time lows.
GBP nears lows ahead of retail sales
A weaker UK retail sales number tonight could see the British pound get back to recent lows. The GBP/USD neared seven-month lows overnight.
In terms of survey-based sales indicators, the British Retail Consortium reported a slowing in the annual rate in September, the CBI reported an improvement in both the reported sales balance and the balance measuring sales volumes for the time of year, while credit/debit card data (values, NSA) appear to have remained largely constant between August and September. In light of all of the data, September’s official sales volumes is likely to reflect a flat reading
Aussie, kiwi stuck at lows
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.
