Dollar Rising on Risk-off Sentiment and Stronger Yields

Risk-off sentiment and rising treasury yields are giving Dollar some support again. The greenback’s strengthen is more apparent against commodity currencies, which is reasonable. European majors are mixed for now, with Euro a touch more resilient. Meanwhile, Yen is indeed trying to recover against everyone but Dollar. There is no clear sign of intervention for now, but as Japan has repeatedly told the markets, there might not be pre-announcement.

Technically, Gold is dropping further towards 1614.60 support. Outlook is clearly bearish as it stays well below falling 55 day EMA, bounded inside the medium term falling channel. Firm break of 1614.60 will resume whole decline from 2070.06 to 61.8% projection of 2070.06 to 1680.83 from 1870.66 at 1567.11. The question is, if that happens, whether EUR/USD would also follow and break through 0.9534 low.

In Asia, at the time of writing, Nikkei is down -1.25%. Hong Kong HSI is down -2.57%. China Shanghai SSE is down -0.39%. Singapore Strait Times is down -0.07%. Japan 10-year JGB yield is up 0.0070 at 0.261. Overnight, DOW dropped -0.33%. S&P 500 dropped -0.67%. NASDAQ dropped -0.85%. 10-year yield rose 0.129 to 4.127.

Fed Evans: We need to continue on the path we’ve been indicating

Chicago Fed President Charles Evans said yesterday, “inflation is just much too high, and so we need to continue on the path that we’ve been indicating — at least that. And I’m hopeful that that will be enough.”

“Continued increases in the funds rate along the lines of our September SEP (Summary of Economic Projections) could lead to a economic outlook where we’re going to see below-trend growth — we’ll be challenged in that regard — we’ll see the unemployment rate go up, but I think that it won’t take off,” Evans said.

“I think if we have to increase the path of the funds rate much more, though, it really does begin to weigh on the economy. I worry that it’s sort of a nonlinear kind of event.”

Fed Bullard: Goal is to raise rates to some meaningfully restrictive level

St. Louis Fed President James Bullard said yesterday that Fed’s goal is to front-load aggressive rate hikes to move to “some meaningfully restrictive level” that would push inflation down.

For November meeting, Bullard said the results “has been more or less priced in to markets” for a 75 basis-point hike, even though he’d prefer to decide at the meting. As for December, didn’t want to “prejudge”.

Then, in 2023, “I think we’ll be closer to the point where we can run what I would call ordinary monetary policy,” he said. “Now you’re at the right level of the policy rate, you’re putting downward pressure on inflation, but you can adjust as the data come in in 2023.”

Fed Kashkari: I can’t see how I would recommend pausing interest rate increases

Minneapolis Fed President Neel Kashkari said yesterday that while headline inflation may have peaked, there is no evidence that core inflation has stopped climbing. So, “I can’t see how I would recommend pausing interest rate increases,” he added.

“My best guess right now is yes, do I think inflation is going to level out over the next few months, the services, the core inflation, and then that would position us some time next year to potentially pause,” he added.

“I’ve seen very little evidence in my region that the labor market is softening,” Kashkari said. “The No. 1 issue I hear from businesses small and large is that they’re struggling to find workers, how they’re having to pay more wages to keep their employees and to attract employees.”

Australia employment grew 0.9k in Sep, unemployment rate unchanged at 3.5%

Australia employment rose 0.9k in September, below expectation of 25.0k. Full-time employment increased by 13.3k while part0time employment contracted -12.4k.

Unemployment rate was unchanged at 3.5%, matched expectations. Participation rate was unchanged at 66.6%. Monthly hours worked dropped -1m hours to 1853 hours.

“It is important to remember that the 1,000 employed people is a net figure – the difference between two large numbers. While employment growth has slowed in recent months, there are still close to half a million people entering employment each month, and around the same number leaving employment each month,” Bjorn Jarvis, head of labour statistics at the ABS, said.

Japan exports rose 28.9% yoy in Sep, imports surged 45.2% yoy

Japan’s exports rose 28.9% yoy to JPY 8189B in September. Exports to China grew 17.1% yoy while shipments to the US increased 45.2% yoy. Imports rose 45.9% yoy to JPY 10913B. However, the surge in import was unlikely a reflection of domestic demand, but sharp depreciation in Yen’s exchanged rate. Trade deficit came in at JPY -2094B, down from August’s record high of JPY -2817B

In seasonally adjusted term, exports rose 3.2% mom to JPY 8672B. Imports dropped -0.6% mom to JPY 10682B. Trade deficit narrowed to JPY -2010B, slightly smaller than expectation of JPY -2.06T.

Looking ahead

Swiss trade balance, Germany PPI and Eurozone current account will be released in European session. Later in the day, US will release jobless claims, Philly Fed survey and existing home sales.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6238; (P) 0.6282; (R1) 0.6312; More…

AUD/USD dips today but stays inside range of 0.6169/6362 and intraday bias remains neutral. Further decline is expected with 0.6362 support turned resistance intact. Firm break of 100% projection of 0.7660 to 0.6680 from 0.7135 at 0.6155 will target 138.2% projection at 0.5781. Nevertheless, break of 0.6362 will indicate short term bottoming, on bullish convergence condition in 4 hour MACD, and bring stronger rebound back to 0.6539 resistance.

In the bigger picture, down trend form 0.8006 (2021 high) is expected to continue as long as 0.6680 support turned resistance holds. Next target is 0.5506 low. Medium term momentum will now be closely monitored to gauge the chance of break of 0.5506.

Economic Indicators Update