FOREX: USD Index Consolidating Weekly Advance, AUD Weakens

NFIB small business optimism eased for a second consecutive month in September whilst price plans remain stubbornly high even if they remain below highs seen earlier in the US-Iran war. 

• Business optimism dipped in September to 97.9 (cons 98.2) after 98.7 in August. It pulls back from the 99.8 in July which had reversed the drop seen on the US-Iran war although remains off the low of 95.3 seen in May (lowest since Sep 2024).
• Actual price changes: a net 31% of firms raised prices compared to three months ago, a third consecutive month at this level having eased from a recent high of 38% in June (joint high with Feb 2023).
• It continues to show much wider breadth of price increases than the 11-12% seen pre-pandemic, although doesn't give a sense of the magnitude of price changes.
• Planned price changes: a net 31% of firms expected to raise their prices over the next three months, up from two months at 28%. It recently peaked at 34% in May (joint highest since Nov 2023) and compares with the 21-22% averaged in 2017-19.
• The press release (link) adds: “Reports of inflation as the single most important problem picked up in September. Twenty percent of business owners cited inflation as their single most important business problem, up 4 points from August, making it the second top issue. September’s reading remains elevated, with the historical average at 7%.” The 20% in September is up from 16% in August. 

• EUR 3m/2y vol is falling further from recent peaks of ~120bp/yr, dipping below 100bp/yr, and normalising versus its US counterpart. The 3m/2y US/EUR spread is picking up from early-month lows below parity and is now tracking close to ~10bp/yr as the premium driven by ECB repricing, energy-related inflation fears, and broader risk anxiety begins to stabilise.
• As this process continues, EU volatility may have scope to normalize further relative to the USD. Uncertainty surrounding Fed policy, inflation dynamics, and the upcoming midterms may help to keep US volatility more firmly supported.

• MNI: US SEP NFIB SMALL BUSINESS INDEX 97.9 (98.7 AUG)