The FX Trader: AUD Getting Overbaked?

Forex

Economic

Summary:

The Aussie is flying high on the run-up in metals and now strong employment data, but the move may be overdone. Elsewhere, GBP remains in a world of hurt and USDJPY is dancing nervously around the 155.00 figure as market perhaps reluctant to challenge Japanese officialdom.

What to know: quick bullets

· The US government is set to re-open, cementing what the market was already expecting earlier this week – it isn't serving as an immediate catalyst. The incoming data schedule is not yet known and we may never get some of it, as data wasn't even collected during the month of October in some cases.

· A big liquidity splash incoming into the US economy? We have a US Treasury account that is loaded with funds – over USD 900 billion – and looking ready to draw those down, which will enhance liquidity. Treasury Secretary Bessent was out yesterday talking USD 2,000 stimulus checks to all. This is high velocity money that will go straight into the economy – or will it go to credit card balances (?) – and could put the Fed on watch for a tick up in growth and inflation even if a lot of the incoming data on the non-AI data center economy is looking wobbly at best, and in out-and-out recession at worst. Very interesting talk as well of giving every newborn child USD 1,000 in US stocks that parents can add to – to be granted to the child at age 18 – a sort of Universal Basic Capital rather than just Universal Basic Income. The idea is to fund all of this from tariff revenue based on tariffs that may or may not be legal and the entire setup skirts the power of Congress – this is historic stuff.

· The Aussie (AUD) got another jolt higher on strong jobs data overnight and the latest pump in metals prices and even perhaps CNY strength at the margin helping the currency, although it may be getting to be a bit much as discussed in the AUDNZD chart below – one of this year's best trenders – a bit ironic when it was rangebound for over a decade, if with some great modest trends during that period.

· Sterling remains a dog, not just on the weak labor market but on concerns that a labor party member may rise to challenge Keir Starmer. Nothing firm on the latter – but with or without this challenge, tough to find any rays of light for sterling. This morning's Q3 GDP data was slightly negative (missing by 0.1% on the QoQ and YoY numbers at 0.1%/1.3% rexepctively) and the Sep. Manufacturing Production number was ugly at -2.2% YoY vs. -1.7% expected, with the Trade Balance number better than expected at GBP -18.9 billion. EURGBP is testing new highs above 0.8830 and GBPCHF posted its lowest daily close…ever at 1.0478 yesterday, leaving only the Liz Truss mini-budget spike from late 2022 below 1.0200 as the last chart point.

· USDCNH – making waves overnight with big drop relative to normal volatility, especially late in Asian session – could be driving the USD weakness this morning.

· EURCHF – keep an eye on the all time lows coming into view in the low 0.9200's, an area that has been tested multiple times since the summer of 2024, for whether the SNB wants to put up a fight on a further drop – 0.9206 was the all time intraday low, if the SNB surrenders on a run lower, we could be looking at 0.9000 next.

· The comeback in Scandies was moderated in EURNOK's case by an ugly sell-off in crude. EURSEK still looks heavy ahead of the big sub-10.90 range lows – incoming German stimulus next year has me liking an eventual move to 10.50 and even beyond next year, with the period from now into year-end seasonally bearish for EURSEK.

Chart focus: AUDNZDThe AUDNZD pair has been one of this year's great trenders, driven by the ever-wider divergence in yields at the front of the yield curve as Aussie rates have remained firmly anchored and even risen sharply from the October lows - especially overnight on the strong AU employment data - while NZ rates trended consistently lower from July through mid-October before stabilizing. Arguably the yield spread – currently at 107 basis points for 2-year swaps, a level last seen in when AUDNZD was trading 1.25+ justifies further upside to 1.2000 and beyond, but near term, have to wonder if this is as good as it gets. Note the beautiful Elliott Wave patterns from the lows to the latest surge higher looking like a "fifth wave of wave five". Yes, the saying goes that we should follow the trend until it bends, but this may be as good as it gets for a while. To prove the point, however, we would need a sharp rejection of this latest surge above 1.1600.

Source: Saxo

The rundown

· EURUSD – impossibly bottled up and needing to show impulsivity for a technical toehold here – really needs to vault and close well through 1.1600 to re-ignite any upside focus – until then nominally neutral and more bearish on any sharp sell-off through 1.1550 again.

· JPY pairs – watching risk sentiment here and the US treasury market, with US equities at nervy levels after the sharp comeback from the latest sell-off. Technically, looks like traders are all looking at one another to decide if they should squeeze USDJPY above 155.00 and take on Japan's MoF and BoJ. If the global risk rally resumes, the squeeze scenario looks more likely.

· GBPUSD and EURGBP – GBPUSD wrapped up in the USD outlook and EURUSD on whether we should prefer EURGBP or GBPUSD to express a negative GBP view. The back up in GBPUSD despite the negative data this morning must be making sterling shorts nervous tactically.

· AUDUSD – AUD doing most of the heavy lifting in getting this one higher and pointing to a challenge of the 0.6600 level – but seems likely we would need some USD weakness in addition to the AUD strength.

· USDCAD – looking pivotal here – solidly bearish reversal recently on rejecting the price action above the prior 1.4080 high – the deathblow for the rally would be significant plunge through 1.400, which resets the focus lower on the 1.3900 area for a fuller confirmation that we may be setting up a massive head and shoulders formation.

Next steps

There is a lot going on in Washington and some interesting new policy impulses in the mix from Treasury Secretary Bessent. Will the market fret new fiscal excess as Trump goes hard populist to throw bread at the masses? The US dollar has been quiet, but needs to send a signal here soon and seems to be trying this morning. USDCAD and AUDUSD suggest USD is softening – as does EURUSD this morning above 1.1600 – today could prove pivotal if the latter sticks a strong close.

FX Board of G10 and CNH trend evolution and strength.Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.

JPY weakness remains the strongest signal, together with NZD weakness – although the latter may be getting overdone as the NZD shorts may be overplayed here. CNH strength sticks out, especially on the move overnight versus the US dollar.

Table: NEW FX Board Trend Scoreboard for individual pairs.

EURSEK has flipped back to negative and enjoys a seasonal tailwind to the downside through year-end. Elsewhere, the AUDUSD threatens an upside trend flip, while the USDCHF "uptrend" is likewise looking on tilt, as is EURUSD soon if it sticks a rally well above 1.1600 for two or three days.

Source: SAXO

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Winkelmann

Forex

Economic

Markets

US Treasuries outperformed Bunds yesterday. Yields dropped between 2.2 (2-yr) and 4.7 (7- to 10-yr bucket) bps. The majority came right after the cash market open, catching-up with the Nov 11 release by ADP. The creator of the unofficial monthly payrolls report recently started providing weekly updates as well. Tuesday's print showed companies shedding 11.3k jobs a week in the four weeks through October 25. Longer maturities including the 10-year found a bottom after a $42bn 10-yr Note auction tailed slightly with bidding metrics a tad weaker.

The currently outsized market relevance of alternatively sourced data (such as ADP's) due to a lack of official government releases may fade in coming weeks. A bill to end the 43-day long shutdown passed the House in a 222-209 vote, despite two Republicans defecting and with the support of six Democrats. President Trump signed that bill into law overnight, supporting risk sentiment. The White House instructed staff to return to their offices starting today but it'll take several weeks at least to overcome the backlog. It means no jobless claims or October CPI that were otherwise scheduled for today.

WH Press Secretary Leavitt said yesterday that it's unlikely that last month's inflation figures will be published at all. The same goes for the payrolls report, although some expect the Bureau of Labour Statistics to combine two months (October and November) into one statistic to catch-up. German rates yesterday eased between 0.3 and 2.6 bps in a bull flattening move, navigating through a flurry of ECB speeches. FX markets were a sea of calm and we expect more of the same today.

EUR/USD overcame European weakness into the US open and ended the day marginally higher just shy of 1.16. DXY treaded water around 99.5 with a weaker JPY preventing losses for the trade-weighted index. USD/JPY rose to a new 9-month high (154.79). Sterling faced selling pressures over the last couple of sessions amid Labour's internal disarray spilling on the streets, a weak labour market report and sub-par Q3 growth. EUR/GBP appreciates to 0.884, the strongest level since April 2023. UK GDP expanded by 0.1% compared to the 0.2% expected and with the accompanying monthly series revealing underwhelming dynamics (-0.1% m/m in September after stagnating the month before).

The numbers are another blow to chancellor Reeves going into the critical Autumn Budget on November 26, which is expected to end up in Labour breaking its 2024 election manifesto through introducing additional taxes. To help fill a fiscal hole of as much £35bn, the UK Treasury has presented the Office of Budget Responsibility with plans to cut household bills and lower inflation (through lowering regulated prices). That should pave the way for further BoE rate cuts and lower borrowing costs. The OBR delivers the economic forecasts to which the UK fiscal rules are being measured against.

News & Views

Strong October Australian labour market data strengthen the view that the Reserve Bank of Australia is finished with its policy normalization cycle. The number of employed people rose by 42k, beating 20k consensus. Details showed an even bigger increase in full-time employment (+55k) which was partly offset by less part-time jobs (-13k).

The unemployment rate dropped back to summer levels (4.3%) after spiking to 4.5% in September. The participation rate remained steady at 67%. Hours worked rose by 0.5% M/M, outpacing the 0.3% M/M employment growth. The AUD government bond curve bear flattens this morning with yields rising up to 10 bps at the front end of the curve. The Aussie dollar profits marginally, currently changing hands around AUD/USD 0.6550.

he UK October housing market survey from the Royal Institution of Chartered Surveyors (RICS) showed the national price balance slightly declining from -17% to -19% in October. Details showed new buyer enquiries at the weakest level since April (-24%) as uncertainty surrounding the upcoming Autumn Budget (potential changes to property-related taxes including stamp duty, capital gains and inheritance tax) not only led to reduced buyer demand, but also sales and new property listings.

Above target inflation and rising unemployment are also negative for the overall market. Agreed sales registered a net balance of -24%, down from -17%. A net balance of +7% surveyors anticipates a modest improvement in 2026. New vendor instructions (-20%) hit the lowest level since 2021.

Source: ACTIONFOREX

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Gerik

Economic

Proposed reforms threaten Vietnam’s competitive edge

Vietnam’s National Assembly is preparing to adopt amendments to its high-tech law in December that would eliminate special incentive provisions on taxes, duties, and land for foreign investors in high-tech industries. These revisions follow Vietnam’s implementation of the 15% Global Minimum Tax under OECD guidance, which already eroded favorable tax conditions for multinationals like Samsung, which previously paid effective tax rates as low as 5%.

This legal overhaul is seen by many Korean businesses as a potential reversal of the policies that initially drew them to Vietnam. The Korean Chamber of Commerce (Kocham) publicly warned Prime Minister Pham Minh Chinh that the move could damage long-term goals like technology transfer, workforce development, and ongoing investment expansion.

Korean investors voice mounting unease

South Korean firms, which have invested a cumulative $92 billion in Vietnam (equivalent to around 20% of the nation’s GDP), are alarmed by the lack of clarity on how compensation for lost incentives will be administered. Samsung alone accounts for over 10% of Vietnam’s exports and produces 60% of its global phone output in the country.

While there’s no current threat of capital flight or halted expansion, Korean officials speaking anonymously acknowledged that firms like Samsung are closely monitoring the reforms and weighing the increased tax burden. These signals of investor discomfort could chill further investment in Vietnam’s critical high-tech sector unless clearer guidelines are provided.

U.S. trade friction complicates outlook

Vietnam’s internal reforms are unfolding amid external trade challenges, particularly with the United States its largest export destination. A 20% U.S. import duty imposed in August on Vietnamese goods has already stung local manufacturers, and the White House has floated the possibility of raising tariffs to 40% on electronics and goods that rely on foreign components.

These proposed duties disproportionately affect Vietnam’s electronics industry, which is largely dominated by Korean firms. Washington’s scrutiny of transshipment and rules-of-origin has left multinationals uncertain about how to structure their supply chains going forward.

Kocham has urged Vietnam and the U.S. to negotiate a “fair and reasonable” transshipment rule to ensure Korean investors can operate in a stable regulatory environment. The lack of clear criteria around U.S. tariff policy only deepens strategic risk.

Policy direction favors local champions

Amid this pressure, Vietnam appears increasingly focused on promoting domestic firms. Recent reforms suggest a shift toward supporting national champions with favorable policies, potentially at the expense of foreign-led export-driven growth.

This pivot could reflect Vietnam’s desire to strengthen technological sovereignty and reduce reliance on foreign capital especially as global trade tensions and nearshoring strategies reshape international supply chains. However, such moves risk disincentivizing some of the very investors that transformed Vietnam into a global manufacturing hub over the past two decades.

Vietnam’s decision to restructure high-tech subsidies represents a pivotal moment in its economic model. While aligning with global tax standards and boosting domestic capacity may serve long-term development goals, the abrupt shift has unsettled key foreign investors like Samsung. With U.S. tariffs looming and investor incentives under threat, Vietnam’s ability to manage both internal reform and external trade pressures will determine whether it can sustain its role as a high-tech manufacturing powerhouse or risk losing its competitive edge in the region.

Source: Reuters

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Gerik

Economic

Fed signals pause after prior cuts, inflation still sticky

In her first public comments since the Federal Reserve’s October 29 policy meeting, Boston Fed President Susan Collins made it clear that while she had supported rate reductions previously, she sees no urgency to lower rates further in the near term. Speaking in Boston, she stated that the current economic environment marked by stubborn inflation and stable demand justifies maintaining current rates for an extended period.

Collins noted that while the U.S. labor market may face some pressure, it hasn’t shown significant deterioration since summer, weakening the argument for immediate monetary easing. Without a “notable deterioration” in employment or a clearer downward trend in inflation, she said further cuts could risk halting progress toward the Fed’s 2% inflation target.

Impact of data blackout due to shutdown

A key complication in the Fed’s current outlook is the lack of fresh inflation data following the U.S. government shutdown. Collins emphasized that without timely data, policymakers are essentially navigating in a partial fog. She stressed the need to first assess how recent rate cuts since September are impacting the economy before considering additional moves.

Her remarks echo broader Fed caution, with policymakers now aligning more closely on a wait-and-see approach. Collins, like others, wants to ensure inflation is moving “sustainably” toward the 2% goal before adjusting policy further.

Broader Fed sentiment shifts toward holding rates

Collins joins a growing group of Federal Reserve officials who are leaning against further easing. Atlanta Fed President Raphael Bostic recently called inflation the “more urgent risk,” arguing that he sees no clear signs price pressures will dissipate before mid-2026. He warned against assuming inflation will subside on its own, especially with factors like tariffs pushing goods prices higher.

Chicago Fed President Austan Goolsbee also reinforced the higher bar for future cuts, particularly after the Fed has already made two reductions this year. Goolsbee emphasized the prolonged period over four and a half years during which inflation has stayed above target.

On the opposite end of the policy spectrum, Fed Governor Stephen Miran has advocated for more aggressive easing, arguing that interest rates are too restrictive. Miran continues to call for a 50-basis-point cut, believing that current inflation readings are backward-looking and that disinflationary trends, particularly in housing, are being underestimated.

Tariffs reemerge as key inflation driver

Collins acknowledged that recent inflation readings have been skewed by an uptick in goods prices, largely due to new tariffs. This development has offset the gradual cooling in housing inflation and has become a critical factor in assessing the inflation outlook. Her remarks suggest that external shocks, like trade policy, are playing an increasing role in short-term inflation dynamics a factor complicating the Fed’s calibration of interest rates.

Susan Collins’ comments reinforce a cautious monetary stance at the Fed. While acknowledging progress on inflation and the rationale for earlier rate cuts, she is firmly in the camp favoring a hold on additional easing. With limited data, ongoing tariff-driven price volatility, and still-resilient economic demand, the Fed appears content to pause possibly through early 2026 unless clear signs emerge that inflation is on a sustainable downward path or labor markets materially weaken. The next few months of data, once available, will likely determine the Fed’s trajectory heading into the new year.

Source: Yahoo Finance

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Daniel Carter

Economic

The U.K. economy grew a meager 0.1% in the third quarter, according to preliminary figures from the Office for National Statistics.

Economists polled by Reuters expected the economy to have grown 0.2% over the July-September period, following an expansion of 0.3% in the second quarter.

Month-on-month, the economy shrank by 0.1% in September, following no growth in August (which was revised down from a 0.1% expansion in the ONS' previous data).

The data comes ahead of the British government's highly anticipated Autumn Budget on Nov. 26, at which Finance Minister Rachel Reeves is expected to announce fresh tax hikes in order to fill a fiscal black hole.

There are concerns that tax hikes could put a dampener on consumer spending and economic activity but the economy could get a pre-Christmas boost if the Bank of England cuts interest rates at its last meeting of the year on Dec. 18.

At its most recent meeting last week, the central bank held off trimming rates with BOE Governor Andrew Bailey telling CNBC that he and the bank's monetary policy committee wanted to see another batch of inflation and labor market prints before acting.

Rob Wood, chief U.K. economist at Pantheon Macroeconomics, was among the economists expecting a Christmas rate cut whether the latest GDP data showed a bounce, or not.

"We believe the MPC [BOE's monetary policy committee) would reduce rates in December even with an upside GDP surprise, as a likely contractionary Budget on November 26 dominates its deliberations," Wood said in emailed analysis ahead of the GDP data.

"But growth is proving resilient, running close to the U.K.'s potential of 0.3% quarter-to-quarter despite strong headwinds from fiscal and global uncertainty."

Wood believed that resilient growth would limit the emergence of spare capacity, making it trickier for the BOE to cut interest rates again in 2026, although some economists predict there could be two rate cuts next year.

Source: CNBC

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Gerik

Economic

Stocks

European equities set for positive start after U.S. relief rally

Major European stock markets are projected to open higher on Thursday, following gains in Asia-Pacific markets and U.S. futures, after President Donald Trump signed a funding bill that ended the longest government shutdown in American history. The resolution of the 43-day deadlock has restored near-term confidence in public-sector stability and eased investor concerns about prolonged policy paralysis.

According to IG market data, Germany’s DAX is expected to open up 0.4%, while France’s CAC 40 and Italy’s FTSE MIB are seen 0.25% higher. The U.K.’s FTSE 100 is anticipated to start just above the flatline, suggesting cautious optimism amid mixed commodity signals and ongoing economic headwinds in the British market.

U.S. political breakthrough reverberates across global markets

The shutdown’s end provides a much-needed boost to global equity sentiment. The House of Representatives passed the interim funding measure in a 222–209 vote late Wednesday, ensuring federal government operations will continue through January 30. The shutdown’s resolution not only avoids further disruption to key U.S. services and economic data but also removes a major source of political risk that had been weighing on risk assets worldwide.

Asia-Pacific equities responded positively overnight, while U.S. futures showed modest gains, with the Dow, S&P 500, and Nasdaq all trending slightly upward in pre-market trading. This global uptick sets the tone for a risk-on session in Europe.

Focus returns to macro data and earnings

With the immediate crisis in Washington resolved, market participants are refocusing on economic indicators, corporate earnings, and central bank policy. However, the data vacuum left by the U.S. shutdown including missing October jobs and inflation reports may temporarily complicate global economic forecasting and add volatility in upcoming sessions.

Still, investors are hopeful that stability in U.S. governance, even if temporary, will allow markets to move forward with greater clarity, especially heading into the holiday season and the European Central Bank’s year-end policy guidance.

The reopening of the U.S. government has removed a major source of global market tension, allowing European indices to track upward in early trading. While today’s relief rally reflects short-term optimism, investors remain cautious ahead of the next funding deadline in late January and amid persistent macroeconomic concerns, including inflation, energy market instability, and soft consumer demand across Europe.