The dollar managed to hold on rather well last week, considering that the only economic data point out of the US in weeks (September inflation) undershot expectations and all but guaranteed cuts at the next two Federal Reserve meetings. The Yen provided the only real excitement among G10 currencies, as fears of fiscal and monetary loosening brought on by the Takaichi administration continue to take their toll on the currency. On the positive side, the week's winner was the Chilean peso, up on hopes of a conservative victory in the upcoming presidential election and a rebound in copper prices.
Next week in markets will be dominated by the Federal Reserve's October meeting on Wednesday. The Fed is universally expected to cut rates, but there is considerable uncertainty about its future course. Inflation remains significantly above targets, and because of the Federal government shutdown there is little to go on about the state of the economy. The ECB October meeting follows on Thursday, with rates expected to remain unchanged for the foreseeable future. Eurozone flash inflation for October, due out Friday, will bookend the trading week.
AUD
The Australian dollar found some footing against the US dollar last week, as markets placed tentative bets that the US-China trade war would end in a compromise, rather than a full-throttle stand off. Domestic economic news was also mildly encouraging, with the October composite PMI edging up to 52.6, now comfortably above the 50 threshold that separates expansion from contraction.
In wider financial markets, this week will be all about Wednesday’s Federal Reserve rate announcement, but in Australia, market participants will also be laser-focused on the third quarter inflation figures on the same day. As things stand, swap markets are assigning around a two-in-three chance of another RBA rate cut at its November meeting, but that could prove to be overly pessimistic should this week’s CPI data show evidence of reemerging price pressures. Economists expect a reading in the main rate in excess of 3% (from 2.1%), which would be the highest level in a year.
NZD
Last week, the New Zealand dollar gained firmer footing against the US dollar amid easing trade tensions between China and the US, coupled with the release of the Q3 inflation report. The report showed an expected uptick from 2.7% to 3%, driven by one-time and seasonal factors such as increases in local government land taxes. However, core inflation—which excludes more volatile items—eased to 2.5% from 2.7%.
These figures align with the RBNZ's outlook, which anticipates inflation slowing to the 2% midpoint by mid-2026 due to subdued domestic demand and rising unemployment. As a result, the RBNZ appears on track to deliver another rate cut at its November meeting, which is currently fully priced in by markets. With little domestic data scheduled this week, investors will keep tabs on the outcome of the Xi-Trump meeting, where a potential extension of the trade truce is largely priced in.
USD
Despite the continuing federal government shutdown, we finally received economic data from the US.September inflation came out slightly lower than expected. However, it is still significantly above targets, has been so for the last four years, and the Federal Reserve itself expects it to remain there at least through 2028. None of this seems likely to stop cuts at this week's meeting or in December. However, the outlook for 2026 remains murky, particularly given the nearly complete absence of reliable economic data amid the government shutdown. We still think the path of least resistance for the dollar over the medium term is downwards.
CNY
Following a two-day meeting in Malaysia, the US and China appear to have made significant progress on trade and other topics. Both sides have signalled an initial agreement on key issues, which is expected to take shape when Presidents Xi and Trump meet in South Korea on Thursday. Statements from US Treasury Secretary Bessent have been particularly encouraging, and it seems the already very low risk of massive US tariffs has dissipated almost entirely.
The fourth plenum and the 15th 5-year plan did not rock the boat too much, with emphasis on self-reliance and technological progress taking centre stage. The statement from the meeting mentioned the need to ‘build a robust domestic market’, but it remains to be seen how serious China’s leadership is about shifting from its traditional supply-focused mindset. The latest consumption data was unimpressive, and property sector weakness persists. That said, following Q3 GDP data, the 2025 growth target of around 5% appears within reach. On that note, this week we’ll keep an eye on October PMI data, with official numbers out on Friday.
