FX Trading focus: We are nearing peak tightness
The US September jobs and earnings data was hardly riveting stuff, but the market reacted strongly to it, nonetheless, as US yields tore back to the highs for the cycle at the front end of the curve and the US dollar stormed higher on the combination of higher US yields and weak risks sentiment. The key development that may have driven the reaction was the official US unemployment rate dropping back to the modern record low at 3.5%. This suggests the Fed will have to stay on message for now with its tightening regime. As well, the broader U-6 unemployment rate dropped back to its record low of 6.7% as well, after rising 0.3% to 7.0% in August. Next steps will be the September US CPI print this Thursday and the Retail Sales data for September on Friday. The latter suggest a rather slow pace of spending growth, with core “less Autos and Gas” sales generally sliding in month-on-month comparisons since early this year.
A spike in geopolitical angst is not helping as we start a new week as the US moves ahead with further measures to cinch off semiconductor sales to China and on Russia’s response against Ukrainian civilian targets after unknown operatives significantly damaged the Kerch bridge, the only road link between the Russian mainland and the Crimean peninsula.
The RBA dovishness is aggravating inflation risks for Australia from a currency angle as the currency hits new lows versus the USD for the cycle below the prior cycle low of 0.636. Worth noting that the exchange rate has only seen one monthly close below the current level since….2003. A couple of interesting data points are up tonight in Australia, including the latest Westpac Consumer Confidence Survey, Household Spending Survey (was up 15% in August!) and NAB Business Confidence survey. The Aussie weakness also felt heavily in the crosses here, as AUDCAD drops to new lows and AUDNZD is threatening the key 1.1250 area again, which it may not survive on a third test.