Japanese Yen Strengthens While Australian Dollar Weakens as North American Trading Session Opens

As the North American trading session commences, the Japanese Yen (JPY) emerges as the strongest currency, while the Australian Dollar (AUD) is the weakest performer. The US Dollar (USD) finds itself positioned in the middle, gaining against commodity currencies such as the AUD, Canadian Dollar (CAD), and New Zealand Dollar (NZD), while experiencing losses against the Euro (EUR), British Pound (GBP), and JPY.

Overnight, several bankers provided insights into the current economic landscape:

• Alberto Musalem, President of the St. Louis Fed, spoke at a Money Marketeers of New York University event, suggesting that further rate cuts may be on the horizon due to the economic outlook. While he did not specify the timing or magnitude of these cuts, he highlighted that the risks of excessive easing outweigh those of insufficient easing. Musalem expressed support for the recent 50 basis point rate cut, noting that maintaining policy patience has been beneficial for the Fed. He anticipates inflation will continue to decrease, converging towards the 2% target in the upcoming quarters, as financial conditions remain conducive to growth. Despite a robust jobs report for September, he believes the current policy trajectory is appropriate and sees no immediate concerns in the labor market, although he acknowledged existing inflation risks.

• John Williams, President of the Federal Reserve Bank of New York, indicated that it would be suitable for the central bank to gradually lower interest rates following the 50 basis point cut in September. His comments, made during an interview with the Financial Times, align with those of Federal Reserve Chair Jerome Powell, who recently suggested a cautious approach with smaller, quarter-point cuts moving forward. Williams emphasized that the current monetary policy is well-positioned, with a positive economic outlook and inflation trending back to 2%.

• Adriana Kugler, Federal Reserve Governor, noted that while the US job market shows signs of cooling, it remains resilient. Speaking at a European Central Bank (ECB) Conference, she welcomed the lower unemployment figures from the latest jobs report and stressed the importance of avoiding a significant labor market downturn. Kugler observed that various indicators suggest the labor market is returning to pre-pandemic levels but underscored the need for a balanced approach in this cooling process.

From the ECB, several members shared their perspectives:

• Frank Elderson, ECB Executive Board member, stated that the ECB will continue to gradually ease its restrictive monetary stance if inflation forecasts, which predict reaching the 2% target by the second half of 2025, are confirmed. He mentioned that the ECB will approach its upcoming meeting with an open mind, especially as downside risks to growth appear to be materializing. Recent data indicating these risks may influence inflation forecasts.

• Mario Centeno, Governor of the Bank of Portugal, remarked that inflation in the Euro Area has aligned with its target. He noted that the easing cycle is expected to progress faster than initially anticipated in June, with the process of lowering rates already underway.

• Vasle, another ECB member, acknowledged that while inflation risks are diminishing, uncertainty persists. He mentioned that an interest rate cut in October is a possibility, but this does not guarantee another cut in December.

• Nagel, also from the ECB, expressed openness to an October rate cut.

The Reserve Bank of Australia (RBA) released its meeting minutes from September, discussing potential scenarios for both raising and lowering interest rates amid economic uncertainty. Members agreed that the current cash rate effectively balances risks to inflation and the labor market but recognized that future financial conditions may necessitate tighter or looser policies. The Board remains vigilant regarding inflation risks, with underlying inflation still too high. They emphasized that policy will remain restrictive until there is confidence that inflation is sustainably moving towards its target range. Although risks surrounding Australia’s exports have decreased, many households are under financial pressure but still able to service loans. The Term Funding Facility was also reviewed as a potential tool for unconventional monetary policy, reflecting a cautious and hawkish stance focused on inflation control.

• Andrew Hauser, RBA Deputy Governor, stressed the importance of the RBA's commitment to combating inflation, indicating no imminent rate cuts. He noted that while US inflation is nearing its target, Australia lags behind, with persistent inflation. Hauser expects core inflation to eventually reach the target but acknowledged that reducing inflation remains a challenging task for the central bank.

In New Zealand, the Reserve Bank of New Zealand (RBNZ) is set to announce its rate decision at 9 PM ET today, with expectations for a 50 basis point cut to 4.75%. The RBNZ initiated its rate decline at the last meeting with a 25 basis point cut.

As the North American session begins, here’s a snapshot of other markets:

• Crude oil is down $1.74 (-2.26%) at $75.40, compared to $75.53 yesterday.
• Gold is up $7.14 (0.27%) at $2649.79, compared to $2648.74 yesterday.
• Silver is down $0.32 (-1.01%) at $31.33, compared to $31.67 yesterday.
• Bitcoin is trading lower at $62,583, down from $63,049 yesterday.
• Ethereum is also lower at $2437.00, down from $2468.70 yesterday.

In premarket trading, major indices are showing gains after yesterday's declines:

• Dow Industrial Average futures are up 61.76 points, following a drop of 398.51 points (-0.94%) yesterday.
• S&P futures are indicating a gain of 23.81 points, after falling 55.13 points (-0.96%) yesterday.
• Nasdaq futures are up 100.01 points, following a decline of 213.95 points (-1.18%) yesterday.

The small-cap Russell 2000 rose 32.65 points (1.50%) to 2212.79 yesterday.

In the Asian Pacific session, shares were mostly lower as China returned from the Golden Week holiday.

In the US debt market, yields are higher, with the yield curve showing little change:

• 2-year yield: 3.972%, down 3.1 basis points from 4.007% yesterday.
• 5-year yield: 3.865%, down 0.3 basis points from 3.872% yesterday.
• 10-year yield: 4.035%, up 0.9 basis points from 4.017% yesterday.
• 30-year yield: 4.321%, up 1.8 basis points from 4.287% yesterday.

The treasury yield curve is steeper:

• The 2-10 year spread is at +5.8 basis points, up from +0.8 basis points yesterday.
• The 2-30 year spread is at +34.5 basis points, up from +27.5 basis points yesterday.

In the European debt market, 10-year yields remain relatively unchanged.