A move lower may be in store for Asia-Pacific markets after sentiment deteriorated overnight during US trading hours. A surprise drop in the number of initial jobless claims for the week ending October 29 intensified bond selling as FOMC rate hike bets hardened. Fed funds futures are pricing a +5% terminal Fed funds rate by March. The policy-sensitive 2-year US rate rose by nine basis points, while the US Dollar DXY Index.
The British Pound fell 2% against the USD despite a 75 basis point rate hike from the Bank of England (BoE). BoE Governor Andrew Baily warned that economic activity would be flat or negative for “some time.” The United Kingdom faces some of the sharpest price pressures among developed economies ahead of a potentially dire energy crunch this winter.
On Thursday, European natural gas prices eased lower to trade at 125.45 euros per megawatt hour (MWh). US Henry Hub prices shed nearly 6% as traders digested an unexpectedly strong 107 billion cubic feet (Bcf) inventory build for the week ending October 28. Crude oil prices fell around 2%. That weighed on oil-linked currencies; against the USD, the Canadian Dollar and Norwegian Krone fell 0.3% and 1.04%, respectively. Canadian oil is trading at its largest discount since December 2013 against US oil, according to the Western Canadian Select (WCS) price at -30.3 per barrel. The record flows out of the US SPR have made the heavy crude oil less attractive to refiners.
The Reserve Bank of Australia’s monetary policy statement is due at 00:30 UTC. The RBA raised its cash rate by 25 basis points earlier this week, disappointing a slim chance that the bank would return to larger hikes after last week’s inflation report. Australia posted a better-than-expected trade balance yesterday, fueled by export strength from natural gas and metal ores. However, China’s Caixin services PMI dampened forward-looking sentiment after revealing a deeper contraction occurred in October (48.4).
Asia-Pacific equity indexes may trade lower today as traders take a cautious stance ahead of the US jobs report, but prices should remain in positive territory for the week. China’s CSI-300 is up 3% since last Friday, and iron ore prices are slightly higher in early trading. China’s third-quarter account balance and an inflation rate update for the Philippines are on today’s calendar. India’s October trade balance will wrap up this week’s economic docket for the APAC region.
Australian Dollar Technical Outlook
AUD/USD turned lower last week after prices failed to clear resistance from the early October levels. The downward move accelerated overnight, and prices may break a short-term trendline. That would threaten the October swing low. Alternatively, a potential rebound faces the falling 50-day Simple Moving Average (SMA).