Volatility returns as investors bring forward rate expectations

Australian Dollar:

In what proved to be a tumultuous week for the Australian dollar investors moved away from the higher yielding asset in a big way following a broader view that markets had miscalculated the pace of potential interest rate movements when compared to the view held by the US Federal Reserve. Slumping to its lowest level in almost six months the domestic unit has now shed 3.5 percent during the month of September marking the return of volatility during a period in which the Aussie really has defied the majority of consensus forecasts. Further dampening demand for the Australian dollar on Friday disappointing industrial production numbers from China have sparked further concerns over the health of the world’s second largest economy. Opening this morning lower at a rate of 0.9015 when valued against its US Counterpart monetary policy minutes from the RBA tomorrow followed by the Fed meeting later in the week will be crucial in determining whether the Aussie is capable of a bounce following a week which has been flooded by sellers.

• We expected a range today between 0.8980 – 0.9140

New Zealand Dollar:

Having reached a seventh month low last week when valued against a much stronger US dollar, confirmation by the RBNZ that neutral monetary policy settings were necessary in the face of stable inflation and a stubbornly high dollar, overall the Kiwi has consolidated the loses witnessed early last week. Finding support around the 0.8130 mark when valued against its US Counterpart the Kiwi has done well in opening steady this morning at rate of 0.8150 following additional signs  economic weakness from China over the course of the weekend where industrial production rose by a mere 6.9 percent. Whilst a quieter start to the week is expected upon open this morning investors will be keeping a close on quarterly GDP numbers due for release on Thursday. 

• We expected a range today between 0.8120 – 0.8180

Great British Pound:

Despite a flurry of key economic releases from the United States on Friday in the form of positive Consumer Sentiment and Retail Sales figures the Great British Pound overall maintained its value  against the worlds reserve currency trading between a low of 1.6203 and a high of 1.6263. Whilst opening marginally stronger this morning at a rate of 1.6262 two key factors in determining Sterling direction this week will be Scotland’s vote of independence followed by  any reports which further bring forward the timeline for higher US interest rates. In other currency moves the Great British Pound is stronger against both the Aussie (1.8047) and the Kiwi (1.9962).

• We expected a range today between 1.8000 – 1.8080

Majors:

In what was a remarkable week for broader currency markets the US Dollar Index posted its ninth consecutive week of gains on Friday as the Greenback rose to a six year high against the Japanese Yen. Amid renewed speculation that the US Federal Reserve will adopt more hawkish language when they meet later this week, the broader trigger for this rapid move back in to US dollar dominated assets highlights just how dovish investors views were surrounding the timing of higher US yields. With markets likely to remain jittery leading up to the key policy meeting, the scope of tighter monetary controls cannot be underestimated given the low volatility and lack of participation excessive stimulus has caused. On the outlook this evening investors will be looking towards US Industrial production figures for short-term direction. Meanwhile this morning the Euro opens stronger against the greenback at 1.2976 whilst the Yen is weaker at 107.35

Data Releases:

• AUD: New Motor Vehicle Sales
• NZD: No data today
• JPY: Bank Holiday
• EUR: Trade Balance
• USD: Industrial Production