AUD Rallies as Bank of Japan Props Up Weak JPY
AUD
The Aussie Dollar has enjoyed a profitable weekend, rallying significantly against most majors with risk appetite back in vogue and the surprise currency intervention on Friday night from the Bank of Japan (BoJ). Additionally, commodities supported the AUD’s rally, with Gold and Silver up 1.3% and 3.3% and Iron Ore and Copper up 0.7% and 1.9% respectively. Asian Shares had closed slightly in the red before the rally in risk assets elsewhere, with only the Shanghai Comp closing in the green at 0.1% so one would expect a day of green across the Asian bourses today. No domestic data released on Friday but we have Flash Manufacturing and Services PMI this morning, just before RBA Assist Gov Kent hits the wires. Later this week, we have CPI q/q tipped at 1.6% and China’s GDP on Wednesday (Tentative) tipped at 3.3%.
USD
AUDUSD rallied significantly early Saturday morning, gaining almost 2 cents from a low of 0.6211 up to a peak of 0.6411 shortly after 9am this morning. The main reason for the rally was a reaction to the BoJ intervening in the currency markets to prop-up the beleaguered USDJPY which was trading at the weakest level since 1990. By aggressively selling USD assets the BoJ was able to strengthen the JPY by almost 6 full cents against USD which also overflowed into other USD crosses, with benefits to AUDUSD included. Also assisting AUD's resurgence was FED speaker Daly’s speech on Friday saying the Fed doesn’t want to be too reactive, and if you keep tightening until you see lagging variables of unemployment and inflation return to steady state, you could easily over-tighten. She added that she believes more is needed for restrictive rates territory, however is requesting a step down into smaller 25-50bp increments of hikes. Other low impact data had been released out of the US, with CB Leading Index m/m (Conference Board, designed to predict direction of economy) and Natural Gas Storage being released below expectations, both of which suggesting somewhat pessimistic outlooks on the economy and energy prices. US Equity markets are certainly reflecting a risk on sentiment off the back of USD weakness with the Dow, S&P500 and Nasdaq up 2.5%, 2.4% and 2.3% respectively. Looking ahead, we have plenty of data to digest this week with Thursday's GDP q/q and Friday's Core PCE Price Index the highlights..
EUR
AUD stronger here as well opening this morning at 0.6463 having peaked earlier this morning just shy of 0.6480 which represents 10-day highs. The moves were not related to European data which was light leading into the weekend, with just Consumer Confidence delivering above expectations at -28 vs -30. Improving risk sentiment was a more likely contributor to the AUD progress however European equities weren't able to capitalise, with the DAX and CAC drifting lower at -0.3% and -0.8%. The data from the EZ picks up this week, starting with Services and Manufacturing PMIs from Germany, France and the EZ as a whole. Nearly all data points expecting to be below 50, a pessimistic outlook. The main piece of macro data from Europe this week will be the ECB's interest rate decision where it is expected to raise rates by 75bps to 2.00%, which is also followed by a Press Conference which may yield some interesting Q&A.
GBP
AUDGBP opens higher at 0.5621 in what has been a volatile start to the week. The AUD gains attributed to the weak economic data out from the UK along with the chaotic leadership, or lack of thereof, in the UK parliament. On Friday, Retail Sales m/m were nearly 3 times lower than expected, down -1.4% vs expected -0.5 and Public Net Borrowing was 19.2B vs expected 15.5B, both reflecting the UK’s residents struggling with payments with rising inflation and energy prices. Former UK PM Boris Johnson formerly removed himself from the race for UK PM which is due to be decided later this week, a move which could perhaps water down some of the recent political instability in the UK. Tonight we have the UK’s Flash Manufacturing and Services PMI, the most impactful piece of data out from the UK this week – both are expecting below 50, a pessimistic outlook.
NZD
The AUDNZD opens flat in what’s been a ranging trading range the last 4 business days, opening at 1.1065. We are also expecting another trading range today as New Zealand takes a bank holiday today. Lackluster data this week continues from last week, with just the ANZ Business Confidence being released this Wednesday.