Written by Steven Dooley, FX & Macro Strategist – APAC
Global overview
The US dollar remained near recent highs on Friday despite a weaker than expected result from US inflation. The greenback’s strength has pushed major markets lower with the GBP/USD at six-month lows and the EUR/USD at nine-month lows. This week, US labour market data will be seen as key, while the RBA and RNBZ both meet.
Bond yields drive market nerves
The greenback remained near 10-month highs on Friday despite a lower than expected result from US PCE inflation with the last fortnight’s rapid rise in US bond yields remaining the main driver in FX markets.
The benchmark US ten-year bond yield finished the week at 4.57% — near 16-year highs and up sharply from 4.09% at the start of September.
The Federal Reserve sent bond yields higher after their 21 September meeting when the central bank projected one more rate hike this year and forecast official rates at 5.10% at the end of 2024 – broadly near current levels.
US sharemarkets have also been hit with the S&P 500 down 6.9% from its July highs.
USD at highs
In FX markets, the market uncertainty has sent the US dollar higher. The USD index reached the highest level in ten months last week.
The EUR/USD fell to the lowest level since January while the GBP/USD fell to the lowest level since March. The USD/JPY climbed to the highest level in 12 months.
On Friday, the US dollar initially fell after the key personal consumption and expenditure (PCE) inflation measure was reported below expectations. The headline monthly figure gained 0.4% (versus forecasts for 0.5%) while the core number gained 0.1% (versus forecasts for 0.2%). The core annual rate, at 3.9%, fell below 4.0% for the first time since September 2021.
While the USD was initially lower, the greenback staged a comeback to finish the week near highs.
The AUD/USD, which neared six-week highs on Friday night, ended flat. The NZD/USD ended with a 0.4% gain.
The USD/SGD and USD/CNY both ended broadly flat.
RBA, RBNZ due this week
Local central banks are the main events in this week’s early trade with the Reserve Bank of Australia due on Tuesday and the Reserve Bank of New Zealand due on Wednesday.
Both central banks are expected to remain on hold as inflation turns from recent highs.
From the US, worries about a government shutdown have eased after a stopgap bill was passed on the weekend that provides government funding until 17 November.
The US employment market will be this week’s major focus with the job openings and labor turnover series (JOLTS) due on Tuesday, ADP employment released on Wednesday and the all-important non-farm employment report due on Friday.
USD stays steady despite PCE drop
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 2 – 6 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.
