Central banks will set the tone ahead of tomorrow’s US October employment report. Both the European Central Bank and Bank of England are scheduled to deliver policy decisions. Neither is expected to change policy settings although there is an expectation that the ECB will open the door to a December ease in the wake of very soft inflation data. ECB President Draghi may hint at such a move in the press conference Q&A session. In Asia Bank Negara Malaysia is also unlikely to move on policy rates today.
However, sources quoted overnight highlighted that the ECB would not ease policy this month and could be too divided to do so in December, pointing to a potentially less dovish outcome than many expect. The EUR rallied following the news story hitting a high of around 1.3549 versus the USD and the currency is likely to remain supported in the short term just below the 1.3500 level especially given the risks to today’s ECB meeting.
There is even less likelihood of easing by the BoE given recently firmer data and the upcoming Quarterly Inflation Report next week. Additionally, there are risks for above consensus readings for both German industrial production data and US Q3 advance GDP today. All in all, there appears to be little on tap to dent the enthusiasm for risk assets although there will be hesitancy to take directional trades ahead of the US jobs data tomorrow.
AUD took a hit this morning in the wake of disappointing jobs data. Employment rose a paltry 1.1k, with full time jobs falling 27.9k. The outcome would have been worse was it not for the 28.9k increase in part time jobs. The unemployment rate was 5.7% in October but the participation rate dropped to 64.8% while the September unemployment rate was revised higher. The data provoked AUD selling and may also result in a return of RBA rate cut talk. AUD/USD will however, find some strong technical support around its 1 November low at 0.921.
Asian currencies may take advantage of a slightly softer USD tone in the wake of capped US Treasury yields. THB may find some relief from political tensions following the news that Senate is likely to reject the Amnesty Bill. The PHP may be sidelined as a super typhoon approaches. The INR has maintained a weaker trajectory, with limited equity inflows so far this month, suggesting that some caution may be reappearing towards Indian assets. IDR has been an underperformer but despite some slowing in GDP in Q3 news that Indonesia will allow more foreign investment may help to stabilise the currency.