Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
“Trump trade” outperforms overnight
The US dollar jumped to two-month highs overnight as the US election race betting odds shifted in favour of Donald Trump although polling continues to show the presidential election is too close to call.
NY Times, Business Insider and Barron’s all noted overnight that financial markets have reacted to the shift in betting markets with smaller companies, financial stocks and the US dollar recently outperforming.
PredicIt betting odds saw the race at 55c for Trump and 51c for Harris, but the 538.com national presidential poll still sees an advantage for Harris, at 48.6%, versus Trump, at 46.0%. The polling in key swing states remains tighter.
The USD index extended its 2.5% rally so far in October as the market hit the highest level since 2 August.
In FX markets, currencies exposed to trade issues and potential new tariffs were hit hardest, with the AUD/USD down 0.6%.
The NZD/USD fell 0.3% as it weakened following yesterday’s lower than expected inflation reading.
The USD/CNH consolidated at two-month highs while the USD/SGD jumped 0.3% at it also reached two-month highs.
Aussie at two-month lows ahead of jobs
Australia’s unemployment rate is scheduled to be revealed today at 11:30 AEDT, with net employment expected to increase by around 30k.
In addition, we project an unchanged participation rate and an unchanged 4.2% unemployment rate for the month due to continued robust population and labor force growth.
Looking forward, leading labour market indicators, recent sub-trend growth, and a probable slowdown in the rate of overseas migration all point to a slowdown in the pace of employment growth in the coming months, which would cause the unemployment rate to steadily rise by year’s end.
Technically speaking, our main focus is on whether the pair can hold above the nearest support, which is located around 0.6661-0.6745 and consists of a group of moving averages and Fibonacci retracement levels.
A break below this support zone sets up a potential move to 0.6400.
ECB policy decision key
Later, all eyes are on the ECB’s policy decision, due at 11.15pm AEDT.
The ECB looks likely to cut deposit rate by 25 basis points to 3.25% as a result of lower September HICP inflation, a worsening economic forecast, and ECB language that is more supportive of this move.
While acknowledging that the current disinflation has been quicker than the ECB had anticipated and that the outlook for economic growth is weakening, communication will probably still emphasize how dependent data is on the direction of interest rates in the future.
Fed pricing and US data continue to influence ECB pricing. We anticipate a decoupling of ECB/Fed pricing in early Q1 2025 due to a much lower euro area HICP than the ECB had anticipated and a persistent decline in euro area activity statistics. The euro has been recently weaker, but with momentum measures now oversold, the EUR/USD might soon stabilize.
Aussie underperforms ahead of jobs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 14 – 18 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.
