FX Update: Brexit tunnel vision, AUD eyes jobs data

Forex 6 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  A bit of cold water thrown on the sterling rally this morning as the Northern Irish DUP party is holding out against the terms of the attempts to put together a last-minute deal. Elsewhere, AUD and NZD remain weak after the latter reported CPI overnight and the former will have a look at important employment data tonight.


The latest extension in sterling higher on hopes for a deal last night has been partially erased this morning after news broke that a UK government official fretted the fate of the Brexit deal due to the DUP holding out on the terms of the draft deal, which apparently places customs check between Northern Ireland and the mainland. But Northern Ireland is so incredibly dependent on transfers from the mainland UK economy so it is hard to imagine that they can’t be bought off, perhaps literally, in some fashion, and some sources suggest cash offers from Johnson’s team may be on offer. By the time I am writing this, the negative reaction has already been half erased.

I had a great discussion of US-China issues from multiple angles this morning in today’s Market Call podcast with my colleague, Ole Hansen. In particular, Ole brought up that US sanctions on Chinese shipper COSCO means that many exporters are unwilling to load cargoes on their ships, which is adding an enormous premium on getting cargoes to China from everywhere in the world. This has to be quite an irritant from the Chinese side as trade deal negotiations are ongoing. As well, the US House of Representatives has passed a bill aimed at supporting Hong Kong protests and specifically, bringing an annual review of Hong Kong’s trade relationship with the US if it is not deemed sufficiently autonomous of mainland China. If this bill passes the Senate, would President Trump sign on to something that could scuttle any trade deal? Enormously important for the ongoing risks of a trade war escalation. The combination of images of Hong Kong protestors waving large American flags and US Speaker of the House Nancy Pelosi sending out a tweet with a picture of herself holding up a “Free Hong Kong” t-shirt will not go down well and China has already promised reprisals if any bill of this sort passes.

Chart: AUDUSD
The AUDUSD pair has been in no hurry to go anywhere for a couple of months now, but faces an important test tonight with the September employment data as the RBA has singled out employment as a key trigger for policy moves and is rapidly nearing the effective zero interest rate bound with a current policy rate of 0.75%. Australian labour market data has begun shifting in the wrong direction in recent months and a deepening of this shift could finally inject some volatility into AUD pairs on the outlook for further policy easing from the RBA, namely warming up for prospects of QE Down Under. For AUDUSD, we’ve not yet seen a daily close south of 0.6700.

Source: Saxo Group

The G-10 rundown

USD – the greenback a mixed bag here as focus elsewhere, but major data surprises either way could reinvigorate interest – up later today we have the US Retail Sales for September, a data series that was strong for the five months prior to the weak number in August.

EUR – the EUR tracking GBP with low beta on the swings in Brexit news. Need to see EURUSD clear 1.1110 and some positive catalyst on the policy or economic data side for a sense that the pair is turning the corner here.

JPY – USDJPY popped to new highs yesterday in the wake of surging global risk sentiment on the apparent Brexit breakthrough, but the key level remains 109.00+ in USDJPY, which will need to see new local highs in US long yields to clear.

GBP – there are perhaps two more surges higher possible here in sterling – first a minor one if the uncertainty around the DUP is swept away and the two sides come to terms and then the second one if the UK Parliament has the votes to approve Johnson’s deal. But the options market is already skewed to pricing more risk of upside volatility in sterling.

CHF – EURCHF hovering around the pivotal 1.1000 and reactive to Brexit outcomes as well as the next leg of long bond yield direction (higher yields CHF negative).

AUD – one of the coincident indicators for employment is consumer confidence and the October Australian Westpac consumer from last week dropped heavily to the lowest of the cycle. The Labour market data series is volatile, but often mean reverts month-to-month. August showed a strong surge of +34k in payrolls.

CAD – Canada’s CPI data up today and wondering if the market a bit complacent on the risk of loonie downside despite the recent rally – a big miss in the would likely catch this market off-guard.

NZD – the Q3 CPI was a bit hotter than expected, but the year-on-year number still dropped to +1.5% and the brief rally in NZD was quickly wiped away – keeping interest in downside NZDUSD. More interesting is the relative strength in AUD vs. NZD over tonight’s Australian jobs numbers.

SEK – the krona a bit more reactive than its Scandie counterpart to positive news on a Brexit deal (implications for EU growth, etc.) but EURSEK has yet to take out the technical outlook-altering 10.80-75 area.

NOK – the krone has reached the danger zone for a further squeeze higher as it significantly clears the 10.00 level, even without conditions that would normally be associated with maximum risk.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – Canada Sep. CPI
  • 1230 – US Sep. Retail Sales
  • 1300 – US Fed’s Evans (Voter) to Speak
  • 1400 – US Oct. NAHB Housing Market Survey
  • 1430 – EIA NatGas Storage change
  • 1500 – DOE Oil and Product Stocks
  • 1800 – US Fed’s Beige Book
  • 0030 – Australia Sep. Employment Change

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.