Author: Steve Oram
Not a lot of major data on the local front in Australia this week, with the currency likely to be heavily influenced by Brexit developments, US-China trade negotiations, and the performance of the US Dollar.
None-the-less, last week’s news of a BREXIT deal helped boost the AUD/USD to highest level (0.6857) in a month. Also helping the AUD was the perception that the trade war dynamics in China have generally stabilised and the labour conditions for Australia were good enough to keep the RBA on hold for the time being.
In a major blow to UK PM Boris Johnson, parliament voted to postpone a decision on whether to back his Brexit deal with the EU. The British government have indicated that the UK will leave the EU on the 31st of October despite the fact that Johnson was forced to send a letter to the EU requesting a delay.
Data released on Friday showed China’s Q3 GDP growth slow to 6.0% from 6.2% in Q2, and lower than market expectations of 6.1% growth. While not a huge miss, the numbers are significant given the size of China’s economy.
Outside of Brexit, US-China trade negotiations will also continue to be a major influence on market sentiment and risk appetite this week. Talks continue, with US officials saying both sides are working on ‘phase one’ of a trade deal. President Trump and Chinese President Xi Jinping are expected to meet next month to possibly sign off on the deal. Any signs that an agreement is getting closer will be positive for risk appetite and lend support to riskier assets, and could be positive for the Aussie Dollar.
The Aussie Dollar made good gains last week on USD weakness, and the direction of the USD will continue to be a major influence this week. The greenback has been under pressure over the past few weeks as markets increase bets on a Fed rate cut in October. A 0.25% cut is nearly fully priced in for October 30th.
While there is not a lot of major data this week out of the U.S, any results will be closely watched including durable goods orders and initial jobless claims due out on Thursday. It remains to be seen if the US Fed will continue to reverse the four rate hikes from 2018, but more weak data out of the U.S will likely lead to a further depreciation in the USD.
The ECB will announce its monetary policy decision later this week, in what is the final meeting of Mario Draghi’s term as president. No change to rates is expected this time around, following the ECB’s decision last month to cut rates and resume its bond-buying program. Of more interest will be President Draghi’s speech shortly after the rate decision announcement.
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