*Lowe’s speech likely to inspire AUD volatility
*ASX set to follow a strong overnight session
*NZD jumps on expected better retail sales
*EUR gets mixed feelings about German IFO
Is the RBA headed for unconventional policy?
We think AUDUSD traders will have their finger on the pulse in terms of how they react to Lowe’s tone from the speech, with two questions of significant value: when UMPT is likely and what form it could take. Guidance in these two areas likely triggers adjustments in how markets are pricing 2020 rate cuts. Around 7bps of cuts are currently priced into Dec 2019. As AUD long positioning is substantial relative to other G10 currencies, we think this could open the door to some long covering should Lowe usher a positive view on UMPTs.
AUD OIS Curve. Source: Eikon
ASX points up on overnight highs
New Zealand retail sales improve as expected
Early morning data in quarterly NZ retail sales out at 8.45am AEDT didn’t disappoint, coming out much stronger on the prior month. Retail Sales Volume q/q printed 1.6% vs the previous 0.2%. Retail quarterly vs 1 year ago showed a 4.5% gain, up on 2.9% in Q2. NZDUSD has reacted to the announcement climbing 0.17% in early trading. However, NZ 10y yields remain unchanged. Stronger NZ retail sales are commensurate with the RBNZ’s decision to leave rates on hold over the summer, with their next meeting not till Feb 2020.
Did German IFO surveys disappoint?
In the chart below, we show that German IFO and EURUSD have moved together in broad strokes over the past 10 years.
EURUSD (dark orange, LHS). German IFO Business Climate Survey (orange, RHS). Source: Eikon.