25bps Rate Hike Expected Today in Face of Stubborn CPI

AUD

The Aussie is mixed against majors this morning as investors juggle three impending Central Bank decisions this week which propose significant risks, the first being this afternoon's RBA interest rate decision. Aussie equities were up 1.1%, the Shanghai Comp down 0.8%, Nikkei up 1.8%, and the Hang Seng down 1.2%. Commodities are all in the red over the past 24 hours, Gold down 0.7%, Silver down 0.6%, Iron down 1.7%, Copper -1.4%. A few small bits of data out of Australia yesterday with Private Sector Credit m/m coming in at expectation of 0.7%, Retail Sales m/m printing better than expected at a 0.6% increase, and the Melbourne Institute Inflation Gauge m/m coming in at 0.4% against last month’s 0.5%. Looking to Chinese data, Manufacturing PMI coming in 49.2, against a 49.9 expectation, and Non-manufacturing PMI 48.7 against a 50.2 expectation. Markets are bracing for a day of AUD volatility with the RBA Cash Rate Announcement at 2:30pm EST. The market is currently predicting a 7th consecutive interest rate hike - pinning a 25bp increase as the most likely outcome, anything above this should be AUD positive. There's an outside chance of a 40bps hike today given the stubborn CPI data from last week, however 25bps seems more likely for what is a very conservative RBA.

USD

The Aussie is down against the Greenback this morning opening at 0.6393 after a high of 0.6427 late yesterday afternoon and a low of 0.6368 in the early hours of the morning. US equities had another day of red with the Dow Jones down 0.4%, the S&P 500 down 0.7%, and NASDAQ down -1%. The Chicago Purchasing Managers Index printed below expectation last night coming in at 45.2, versus 47.2.  This measures a relative level of business condition in Chicago, conditions such as employment, production, new, orders, prices, etc. Readings below 50 indicate contraction territory. President Biden held a press conference at the White House this morning about major Oil Companies making record profits as they refuse to help lower prices for the average Joe at the pump, saying the “Oil Industry has not met its commitment to support the American people”, he said the size of Oil companies’ profits were outrageous and US Oil firms that don’t invest “will face taxes on profits”. Another example of major governments considering fiscal intervention in the quickly inflating energy sector that the average consumer has borne the brunt of. Plenty of upcoming data in the US economic calendar. Later tonight, JOLTS Job Openings are printing, currently having 9.75M priced in. ISM Manufacturing PMI is also due tonight, markets expecting a result of exactly 50.0 which is close to contractionary territory (below 50.0 is contractionary), which has not happened since June 2020. 

EUR

The Aussie moved higher against the Euro despite a slew of positive economic data out of the Eurozone, opening this morning at 0.6461, after hitting a low of 0.6425 in the early hours of the morning. Last night Eurozone flash CPI estimate y/y on year came in above expectation at 10.7%, versus it’s 9.9% level last month. Core Flash CPI estimate y/y also above expectation at 5%, against its 4.8% expectation. The ECB’s mild interest rate pivot may prove premature as Eurozone inflation is refusing to peak. Energy prices are continuing to be the main driver of inflation, contributing 4.2%, and Food prices contributing 2.8%. Eurozone Prelim flash GDP q/q came in above expectation at 0.2%, contrasting against the last printing at 0.8% in July. Today we have a bank holiday in France and Italy. German Retail Sales m/m printed last night at 0.9%, above the -0.5% expectation. Italian Prelim GDP q/q came in at 0.5% versus the expectation of -0.1%. Looking to Euro equities, the DAX gained 0.1% and the CAC lost 0.1% over the last session. The upcoming European economic calendar this week is chockablock. Some highlights being German Trade Balance, pegged at a positive 1.5B, Spanish, Italian, French, German Final Manufacturing PMIs all being printed tomorrow night and the ECB President Lagarde due to speak Thursday night at a panel discussion on Sustainability and Money in Latvia, no doubt markets will be listening for any references or clues to future interest rate decisions.

GBP

The AUD is up against the Pound Sterling this morning opening at 0.5578, gaining roughly 60bps in the last 24 hours. M4 Money Supply m/m printed well above expectation last night at a 2.1% increase versus the 0.2% expectation. Mortgage approvals came in just above expectation at 67k instead of the expected 66k. Net Lending to Individuals month on month, also well above expectation at 6.8B versus the 6.3B expectation. The FTSE was up 0.7% in the latest session. British economic data tonight includes Nationwide HPI m/m currently predicted at -0.4%, Final Manufacturing PMI markets predicted a 45.8, and Final services PMI, markets predicting a 47.5. Volatility to continue into Thursday night's interest rate decision, with the markets predicting a 75bp hike from the BOE. Markets expecting a unanimous vote for this rate hike, given the latest CPI numbers from Britain shows their inflation hasn’t peaked yet. 

NZD

Looking to our fellow Antipodeans, the Aussie is down against the Kiwi this morning breaking through the 1.10 handle, currently sitting at 1.0998. This Kiwi strength has been helped along by the difference in interest rate hikes at the last meetings, with the NZers going by 50bps versus the Australian 25bps. Building Consents m/m printed at a 3.8% increase this morning, a big improvement from the -1.6% last month. NZ data to look out for this week includes the RBNZ Financial Stability report, that is produced twice a year. Tomorrow Employment Change q/q is being printed, currently pegged at +0.5%, and the Unemployment Rate predicted to decrease from 3.3% to 3.2%. RBNZ governor Orr is due to hold a press conference about financial stability at 9:00am tomorrow.