Friday’s trading was mostly subdued, with major currencies generally extending the losses they saw against the USD. Today’s releases out of China (including GDP) could be the highlight of the week.
US economic data did improve, with the U of Michigan consumer sentiment index jumping back above 90, helped by early October’s equity market rebound. This is consistent with robust growth in consumer spending.
However, the USD rally was well underway before that release, and was more a simple extension of major currency losses, which began on Thursday night. The improved data tone out of the US at the back end of last week (particularly CPI and jobless claims) should help draw a line under near-term USD weakness, after a veritable rout over the past fortnight.
AUD lost the most among the major currencies, aided in part by RBA warnings on the state of the Australian housing market. In its Financial Stability Review, the RBA warned that the “risks surrounding the housing and mortgage markets seem higher than average at present”. In particular, signs of oversupply in Sydney and Melbourne apartments could soon translate to outright falls in prices.
NZD caught some of the AUD’s cold, finishing 0.6% lower for the day. The 0.6850 level remains an important topside resistance. Combined with waning momentum, and NZD/AUD resistance at 0.94, there could be further underperformance in NZD early this week.
For the broader market, this week’s schedule of events seems unlikely to offer many cues for direction. Much of the data due is second-tier, especially out of the US. A smaller contingent of Fed speakers hit the circuit this week, ahead of next week’s policy decision. For choice, we’d watch Dudley’s and Powell’s comments on Wednesday morning.
In the absence of a clear steer from data, we’re relatively neutral on currency direction this week, though biased toward further USD gains and some NZD underperformance. Today’s China GDP release will be noteworthy. We anticipate an on-consensus 6.8% y/y or even a touch higher. An undershoot would spark a bigger reaction, especially in Asia FX, AUD, and NZD.
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Raiko Shareef is on the BNZ Research team. All its research is available here.