FX Daily: More attention on fiscal plans in Australia and Germany
Commodity-led AUD and NZD depreciated most on risk aversion by 1.1% and 0.8%, respectively. Dow, S&P 500 and Nasdaq Composite fell 0.3%, 0.8% and 1% respectively. Nasdaq closed at a new year’s low of 10542. Although NZD closed at 0.5567, its lowest level since April 2009, it has yet to breach the intra-day low of 0.5470 seen during the Covid-19 outbreak in March 2020. However, AUD closed at 0.63 yesterday and is farther away from its Covid lows of 0.5743 (daily close) and 0.5510 (intra-day low). Hence, many expect the Oz to keep falling faster than the kiwi. More so after the Reserve Bank of Australia delivered a smaller 25 bps hike to 2.60% last week following four consecutive months of 50 bps increases. On 13 October, another drop in Australia’s consumer inflation expectations, which fell from 6.7% in June to 5.4% in September, could add pressure. The focus is also on the federal budget announcement on 25 October. Prime Minister Anthony Albanese does not intend to break the Labour election pledge to keep the Stage Three tax cuts. The government also wants to lift defence spending from 2% to 2.2% of GDP.
EUR depreciated 0.4% to 0.97. Eurozone Sentix Investor Confidence fell to -38.3 in October, its worst reading since May 2020. More importantly, the current situation index plunged to -35.5 from -26.5. Investors were despondent over the energy crisis and wary of another escalation in the Russian-Ukraine war. Bloomberg consensus sees three quarters of negative growth for the German economy from 3Q22 into 1Q23, amidst double-digit inflation in 4Q22. The EU 10Y bond yield rose to 2.342% (the highest since 2011) from 1.917% a week ago after Germany’s proposed EUR200bn (5% of GDP) aid plan to help its people cope with the energy crisis drew criticism from EU member countries. EUR has an important support level of just below 0.96. Failure to hold this could send it into the 0.8270-0.95 range seen in 2000-2002.
DXY appreciated the fourth day by 0.3% to 113.14. Fed Vice Chair Lael Brainard tempered gains with her words of caution over the recent increase in global economic and financial uncertainties. However, don’t expect Fed Chair Jerome Powell to back down on the Fed’s commitment to control inflation at the IMF and World Bank Annual Meeting. The markets have discounted a fourth 75 bps hike to 4% at the FOMC meeting on 2 November. Chicago Fed President Charles Evans affirmed the Fed’s latest projection for rates to be restrictive above 4.50% early next year before moving to a wait-and-see mode. On 13 October, Bloomberg consensus expects US CPI inflation to fall from 8.3% YoY in August to 8.1% in September, still high above the 2% inflation target. The Fed will be concerned if core inflation rises above the 6.5% high in March. Today, Cleveland Fed President Loretta Mester, who is speaking today, needs more evidence to consider scaling down the pace of hikes.
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.