AUD/USD: Tighter financial conditions to pressure aussie before recovery in 2023 – MUFG

The Australian dollar weakened sharply in September as financial conditions tightened globally. This trend is set to persist for the rest of the year, economists at MUFG Bank report.

Sharp housing market correction is a clear downside risk

“The economy in Australia remains resilient but there are signs of weakness in the housing market. While the still strong labour market is reason for optimism on the outlook for the economy, a sharp housing market correction is a clear downside risk.” 

“With global equities and commodities set for further declines before year-end as major central banks continue to tighten aggressively, we see all currencies weakening further against the US dollar through to year-end. Assuming equities then bottom and central banks are allowed to pause, some reversal for AUD/USD next year seems likely.”

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EUR/USD to remain glued into the lower half of September’s 0.95-1.02 range – SocGen

The US economy dictates EUR/USD prospects. Therefore, the EUR/USD is unlikely to race higher as the American economy continues to outperform the eurozone, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

It is hard to see the euro staging much of a rally

“The US has been outperforming the eurozone since mid-2021, and that outperformance has been accompanied by a rising dollar. It shows no signs of abating.”

“We’ll see what this afternoon’s US ISM data throws out (the consensus looks for a fall from 53.8 to 52.4), but if the US economy continues to outperform (in both manufacturing and services ISMs, and in the payroll report at the end of the week), then it’s hard to see the euro staging much of a rally.”

“Easier to see it mostly glued into the lower half of September’s EUR/USD 0.95-1.02 range.” 

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GBP/USD: Bullish bias stays intact, 1.13 in the crosshairs

GBP/USD has gathered further bullish momentum. Pound bulls eye 1.1300 next, 

Buyers retain control of cable’s action

“On the upside, 1.1300 (Fibonacci 61.8% retracement of the latest downtrend, 100-period SMA) aligns as the next target. In case buyers flip that level into support, the pair could continue to push higher toward 1.1400 (static level) and 1.1500 (200-period SMA).”

“First support is located at 1.1130 (Fibonacci 50% retracement) before 1.1100 (psychological level) and 1.1000 (psychological level, 50-period SMA, Fibonacci 38.2% retracement).”

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Germany's Lindner: Not following British down the path of expansionary fiscal policy

German Finance Minister Christian Lindner said on Thursday that they will mobilise Germany's economic strength when necessary, as reported by Reuters.

Regarding the German government's decision to implement a price brake on gas and electricity while providing funding of up to €200 billion for an "economic defence shield," Linder said that these measures should not fuel inflation.

"We are not following the British down the path of expansionary fiscal policy," the minister explained.

Market reaction

The EUR/USD pair retreated from session highs following these comments and was last seen trading at 0.9705, where it was down 0.33% on a daily basis.

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US: International trade deficit narrows to $87.3 billion in August

US international trade deficit narrowed by $29 billion in August.

US Dollar Index clings to small daily gains above 114.00.

The data published by the US Census Bureau showed on Wednesday that the US international trade deficit declined by $2.9 billion to $87.3 billion in August from $90.2 billion in July. 

"Exports of goods for August were $179.8 billion, $1.7 billion less than July exports," the publication read. "Imports of goods for August were $267.1 billion, $4.6 billion less than July imports."

Moreover, the report revealed that the Wholesale Inventories rose by 1.3% in August, higher than the market expectation for an increase of 0.7%.

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen posting small daily gains at 114.25.

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GBP/USD: Vulnerable to a break of parity later this year – ING

There has been a loose discussion in the market about the prospect of GBP/USD hitting parity for some months. Economists at ING believe that the pair could break under 1.00 this year.

EUR/GBP can make a run towards the March 2020 high of 0.95

“At this stage, we think UK authorities will probably just have to let sterling find its right level. The UK has a reserve currency so it can always issue debt – it’s just a question of the right price.”

“We are still bullish on the dollar this year as Fed leads the deflationary charge and global growth slows. That means GBP/USD is now vulnerable to a break of parity later this year, while – quite unexpectedly – EUR/GBP can make a run towards the March 2020 high of 0.95, with outside risk to the 2008 high of 0.98.”

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Gold Price Forecast: XAU/USD rebounds from YTD low, upside potential seems limited

Gold reverses an intraday slide to its lowest level since April 2020 amid a modest USD pullback.

Recession fears, a softer risk tone further extend some support to the safe-haven commodity.

Bets for more aggressive Fed rate hikes to limit the USD downfall and cap gains for the metal.

Gold stages a goodish bounce from its lowest level since April 2020 touched earlier this Monday and climbs to a fresh daily high during the early European session. Bulls, however, struggle to capitalize on the move beyond the $1,650 level and remain at the mercy of the US dollar price dynamics.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, surrenders its early gains to a fresh two-decade high amid a recovery in the European currencies. This, in turn, assists the dollar-denominated gold to attract some buyers near the $1,626 region. Apart from this, the prevalent cautious market mood, amid worries about a deeper global economic downturn, turns out to be another factor offering support to the safe-haven precious metal.

The attempted recovery, however, lacks follow-through buying, warranting caution before positioning for any meaningful upside. The Fed last week delivered another supersized rate hike and signalled that it will likely undertake more aggressive increases at its upcoming meetings to tame inflation. A more hawkish stance adopted by the US central bank remains supportive of elevated US Treasury bond yields and should limit any meaningful USD corrective slide, at least for the time being.

The yield on the rate-sensitive 2-year US government bond stands tall near a 15-year high and the benchmark 10-year Treasury note hits the highest in 11 years. This might further contribute to keeping a lid on the non-yielding gold. In the absence of any relevant economic data from the US, traders will take cues from speeches by influential FOMC members. This, along with the US bond yields, the USD price dynamics and the broader risk sentiment might provide some impetus to gold.

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