Monday’s Asia-Pacific Outlook

Asia-Pacific markets will search for direction to open the week, but if Friday’s Wall Street close is an indication, prices look ready to move lowers. The S&P 500 closed down by 2.8% on Friday after a largely in-line non-farm payrolls report failed to assuage fears of Fed rate tightening. The US added 263k jobs in September and the unemployment rate fell to 3.5%. US bond markets are closed on Monday for a holiday, which may strain liquidity.

The policy-sensitive 2-year Yield rose around eight basis points throughout the NY trading session. Rate traders priced in an increasing likelihood for a 75-basis point rate hike at next month’s Federal Reserve meeting, with Fed funds futures and overnight index swaps (OIS) now pricing a near 100% chance for the larger rate hike. Hopes for a Fed pivot have to wait.

The focus now turns to the upcoming US consumer price index (CPI) due on October 13. Analysts expect core inflation—a measure better suited to predict the Fed’s actions—to cross the wires at 6.5% from a year ago, which would be up from the prior month’s 6.3%. A hotter-than-expected print would all but guarantee a 75-bps hike next month and also likely lift the forecasted terminal rate.

The Westpac consumer confidence print may influence the risk-sensitive Australian Dollar this week. AUD/USD pain has continued following the Reserve Bank of Australia’s reduced pace of tightening from its last meeting. That downside is likely to continue as the Federal Reserve looks ready to continue hiking at an accelerated pace.

Australian Dollar Technical Outlook

AUD/USD formed a bear flag last week, suggesting that prices are in for more pain ahead. Moreover, the MACD oscillator turned negative below its signal line, a bearish sign for price action this week. A break below flag support may clear the way for more downside.

AUD/USD Eight-Hour Chart

(Click on image to enlarge)

Chart created with TradingView

More By This Author: