Weekly Market Recap

Dollar down

28/09/2020

Week in review

Australian preliminary retail sales falls 4.2% in August
U.S. composite PMI falls to 54.4
Eurozone composite PMI falls to 50.1

Week ahead

Australia building approvals
U.S. labour market report
Australia private sector credit

Thought of the week

Speculation that the RBA is close to further easing pulled the rug out from under the Aussie dollar last week as some commentators suggested action may come as soon at the October meeting. However, if the RBA was to ease it may wait until November, or even next year, to get a clearer picture of the economy after the Government Budget announcement in October and COVID restrictions are eased across states in the coming weeks. When it comes to the currency, the relatively restrained approach to unorthodox monetary policy by the RBA compared to other central banks has provided support to the Aussie dollar. But so has the risk on sentiment in markets. The cross rate to the U.S. dollar has become highly correlated to the performance of the S&P 500. A risk on stance usually implies a weaker U.S. dollar, but market nerves of late have seen the greenback strengthen once again. The may keep a lid on any Aussie appreciation even if the RBA doesn’t deliver next month.

Risk on sentiment has lifted the AUD
13 week rolling correlation of the AUD/USD and S&P 500

Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management, all returns in local currency unless otherwise stated.
Equity price levels and returns: Levels are prices and returns represent total returns for stated period.
Bond yields and returns: Yields are yield to maturity for government bonds and yield to worst for corporate bonds. All returns represent total returns. AusBond Comp is the AusBond Composite 0+ Yr, AusBond IG is the AusBond Credit 0+ Yr both provided by Bloomberg.
Currencies: All cross rates are against the Australian dollar. An appreciation of the foreign currency against the Australian dollar would be positive and a depreciation of the foreign currency against the Australian dollar would be negative.

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