TWD: USD/TWD Continues To Track Lower, Aided By Robust Inflows
USD/TWD continues to track lower, the pair down a further 0.15% to 30.24 in the first part of Thursd...
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AUD: Correlations With Commodities Stronger Than Rate Differentials Recently
The RBA meeting is the key event risk for the AUD today. The last two meetings have delivered surprises relative to market expectations. Last month the RBA was widely expected to deliver a 25bps cut, but held rates steady, while in May the RBA arguably delivered a dovish 25bps cut. This time around a 25bps cut is expected by the sell-side economic consensus and market pricing.
- If a 25bps cut is delivered most focus will rest on the RBA language around the outlook/forecasts. Market pricing is close to 60bps worth of cuts (including today's 25bps move) between now and year end.
- Still, outside of short term risks today, AUD/USD has not correlated strongly with AU-US 3mth rate differentials (1yr year ahead). The table below presents the level correlations between AUD/USD and versus macro drivers since the last RBA policy meeting in July. The current 3 month rate differential is around -9bps, off earlier August hikes following the weaker US NFP print at the start of the month.
- Other correlations are stronger, over the past month or so, particularly with respect to global commodity prices.
Table 1: AUD/USD Levels Correlations Since Last RBA Meeting
| AUD/USD | |
| Global Metals | 0.62 |
| Global Commodities | 0.51 |
| Iron Ore | 0.42 |
| Global Equities | 0.08 |
| AU-US 3mth Differential (1yr Frd) | -0.17 |
Source: Bloomberg Finance L.P./MNI
AUSTRALIA DATA: Business Outlook May Have Turned
NAB’s measure of business confidence can be volatile but it has been trending higher since April and printed at 7 in July up from 5 in June and -2 in March signalling an improvement in how firms see the outlook. Business conditions moderated to 5, but are still above every month this year except June, which was revised down 2 points to 7. The activity components moderated in July but generally remained at levels above May.
Australia NAB business confidence vs conditions
- The July price/cost components of the survey were consistent with other indicators suggesting that disinflation may have stabilised. Labour costs rose 2.1% 3m/3m but this measure usually picks up in July due to wage increases, including the minimum wage, scheduled for the July 1 start to the financial year. But prices of final products rose 0.9% 3m/3m, highest in over a year, and retail prices were up 1.1%. Purchase costs increased 1.4%, the highest in 3-months.
- After picking up to 3.6 in June, employment moderated back to 1.4 in July below the 2.7 series average. It has been trending down signalling lower labour demand. July jobs data print on Thursday and consensus is forecasting a 25k increase and 0.1pp drop in the unemployment rate to 4.2%.
- Forward orders continued to hover around neutral at -0.2 in July after +0.2 but above the -3.3 average of the last 24 months. Exporters sales were weak at -3.6 following June’s -3.1.
Australia NAB business prices/costs 3m/3m%
Source: MNI - Market News/LSEG
FOREX: JPY Crosses - Drift Higher, GBP/JPY Eyes 200.00
US Equities stalled and drifted lower in the N/Y session as some risk was pared back going into the US CPI. This morning US futures have opened pretty muted, ESU5 +0.07%, NQU5 +0.07%. The JPY crosses are consolidating their recent gains, GBP/JPY leads the move eyeing a test of 200.00.
- EUR/JPY - Overnight range 171.55 - 172.19, Asia is trading around 172.35. This pair bounced off its support just below 170.00 and has bounced nicely to put a base in now around 170.00. While risk continues to trade positive this will remain bid now on dips.
- GBP/JPY - Overnight 198.19 - 199.06, Asia trades around 199.20. The pair found good demand towards the 195.00 support as risk turned higher. Depending on your view for risk from here, I suspect this bounce could see sellers remerge first up. A move back above 200.00 would negate this and signal another leg higher though.
- NZD/JPY - Overnight range 87.55 - 87.99, Asia is currently dealing 88.10. The pair found solid demand towards the 86.50 area, sellers should remerge on a bounce back towards 88.50 first up. A sustained move back above 89.00 would negate this and reinstate the momentum higher.
- CNH/JPY - Overnight range 20.5056 - 20.6032, Asia is currently trading around 20.6100. This pair found solid demand back towards its first support area around 2.4000. A sustained break back below 2.3000 is needed to turn momentum lower again.
Fig 1 : GBP/JPY Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
