FX Update: Busy week ahead in politics, geopolitics and economic data

There was quite a flap generated ahead of the weekend as Trump administration officials were said to be outlining new rules to limit US investments in Chinese companies and even delisting Chinese companies from US exchanges, a story that may have driven the weak risk sentiment in equities for much of Friday’s US  session. Over the weekend, the story was downplayed by Trump administration officials and US Treasury Secretary Mnuchin’s office issued a statement saying there were no current plans to stop Chinese companies from listing on US exchanges, though other portions of the original story were not addressed in the statement. Clearly, there is a risk of a broadening of US efforts to confront China’s policies beyond tariff increases. This issue will return, though likely not before we know the outcome of this next round of US-China trade talks scheduled to start October 11.

Markets are in a fairly positive mood to kick of the week as well on stronger than expected Chinese survey data, both official and in the Caixin Manufacturing PMI for September, which registered a reading of 51.4 vs. 50.2 expected and 50.4 in August.

Opponents of UK Prime Minister Boris Johnson are hurling everything and the kitchen sink his way as the embattled prime minister finds himself accused of improprieties while mayor of London and on a sexual harassment accusation from 20 years ago. Sterling seems to be able to take it in stride for now, but sterling longs will need to hope for more concrete indications that the EU and Johnson are moving closer to a deal or that a delay is a sure thing if no deal is reached soon. There is speculation that Johnson may try to flout the new law requiring him to seek a delay if no deal is reached by October 19.

The slowdown in Germany industry is finally being felt in its labour market, as job losses started showing up consistently in recent months, though the September data showed a -10k reading. Note that Germany’s population bracket in the traditional 25-64 population bracket is shrinking at an accelerating pace, but the participation rate for the very broadly defined 15-74 year-old age bracket has picked up sharply from 62% around 2006 to over 69% today. 

Chart: AUDNZD
The AUDNZD long case was reinvigorated overnight by a weak New Zealand Business Opinion survey overnight, the weakest since early 2008, and the survey included very low inflation expectations readings that are likely to get the RBNZ’s attention. This helped reinvigorate the AUDNZD bullish case and underline the importance of the 1.0700 area support. The pair needs to hold near or above 1.0800 through tonight’s RBA meeting to keep the focus higher here after this latest surge. If the RBA manages to impress on the dovish side tonight, on the other hand, we have the risk of a retrenchment into 1.0600 and even the 200-day moving average lower still before finding support.