Focus remained on the US elections overnight obscuring the Central Bank narrative that lies ahead. The most recent tracking polls, which includes the latest FBI account, indicates Clinton continues her steady lead in the polls at 47-41 %, but this news has been largely overshadowed by plunging oil prices after OPEC weekends talks concluded without any supply concessions. As expected, oil related stocks have weighed on Global Stock indexes, and the US 10Y yield has unassumingly fallen overnight.
Regardless of the polls, reopening the e-mail investigation has certainly thrown a spanner into the works, but is very much debatable if it is a “game changer” at this late stage.
The AUD remains offered as we approach today’s RBA announcement on the back of the prospect of decreasing interest differentials with the US. Although we’ve seen the back end of the US yield curve ease overnight of lower oil, the Aussie has shown little grit as the backend US rates curve looks to head higher.
In the meantime, the AUD remains supported above the 76 handle as we approach the important RBA announcement and while the consensus is no change, traders will be keenly focused on Governor Lowe’s post announcement statement. If we are going to see any action on the AUD today, it will be around the statement; however, Melbourne Cup fever is hogging the early headlines.
Overall, I get the sense the RBA is unlikely to rock the boat and will reaffirm their neutral tack. I expect local traders will leave little footprints in the Australian market today. In mid-morning news, extremely buoyant China PMIs have given a bounce to global risk sentiment and the Aussie is grinding higher pre RBA.
The typical month end volatility was evident in early London trade as the USD remained bid with USD/JPY trading above 105 heading into the London fix, but the dollar gave up all those gains and some as pre-election jitters continue to weigh on trader’s sentiment.
It still hasn’t sunk in that we’re entering a BOJ announcement and the markets are not fastened on the edge of its seat, it is indeed the feeblest BoJ event of recent times. While it is widely expected the BOJ will remain status quo on monetary policy, this all feels far too calculable for Kuroda, so I continue to expect some twist in the Rinban operations.
BOE Governor Carney confirmed that he would lengthen his overseer role of the BOE through June 2019. We saw a relief rally on the pound on decreased uncertainty, but given that the BOE governor has stated that his willingness to cut interest rates to mitigate Brexit risk, the uptick quickly ran out of gas as the market continues to position for “the worst is yet to come scenario.”
Chinese yuan
It’s worth noting that despite yesterday’s -217 pips drop on the CNY fix, the market remains in dollar bid mode as the uptrend remains intact. US election risks have largely overshadowed growing negatives in the Chinese markets and concerns are mounting.
In another attempt to kerb capital outflows China has escalated its clampdown on the sale of insurance investment products to mainland purchasers
Traders flipped through today’s China manufacturing PMI, which remains in expansion mode. They voted favourably as regional risk sentiment remains buoyant and the Hang Seng is riding a favourable post-PMI tailwind, as both output and new orders were up to the highest levels year to date. The follow-up Caixin PMI was equally bouncy coming in at 51.2, the highest levels since June 2014.
Today’s fix came in line with market expectations at 6.7734, so there were no surprises for traders to deal with.
The USD/MYR opened a bit higher this morning after last night’s stinging drop in oil prices. With the oil markets looking to slip slide lower, expect the market to be well supported on dips.