AUD Consolidating in Quieter Trading Conditions
AUD
AUD advanced overnight against its counterparts, apart from the Sterling, despite a relatively light-on economic docket. Asian equities were largely higher on the close with the CSI 300 underperforming down 0.4%, with China’s daily Covid cases rising to the highest during the pandemic. The ASX finished Thursday’s session +0.15%, a fresh 6-month high led by interest rate sensitive IT and Real Estate shares. In commodities, both Gold and Silver trade almost flat, with Iron Ore bucking the trend gaining 0.9%. China reported record high COVID-19 infections yesterday, with cities nationwide imposing localized lockdowns, mass testing and other curbs that are fuelling frustration and darkening the outlook for the world's second largest economy. Brokerage Nomura cut its China GDP forecast for the fourth quarter to 2.4% year-over-year from 2.8%, and cut its forecast for full-year growth to 2.8% from 2.9%, which is far short of China's official target of about 5.5% this year. "We believe re-opening is still likely to be a prolonged process with high costs," Nomura wrote, also lowering its China GDP growth forecast for next year to 4.0% from 4.3%. China stocks fell yesterday, as concerns over record-high domestic daily COVID-19 cases overshadowed optimism from fresh economic stimulus, and missing out on a rise in global stocks to two-month highs. Looking ahead, Retail Sales m/m will be released on Monday, with expectations of a 0.6% figure.
USD
AUDUSD gained some momentum overnight with its sights set on 0.6780, running out of steam at the 0.6778 mark, consolidating around 0.6760 as the American Dollar extends its weekly decline. Cash, equity and bond markets were closed but S&P equity futures did make gains of 0.3% albeit on low volume. Little reaction to any of the comments or data with the US Thanksgiving holiday sapping market interest and liquidity. The U.S. Dollar was lower across the board on Thursday, as markets continued to react to the latest Fed minutes. GBPUSD is currently trading at a three month high, with EURUSD nearing a five month high, and the DXY (US Dollar Strength Index) has lost the 106 handle, trading at 105.85 this morning. However, some worrisome headlines may soon trigger a flip in investors’ sentiment. On the one hand, tensions between Russia and the EU continue and are on their way to escalate, as European Commission President Ursula von der Leyen announced they are working full speed on a 9th sanctions package on Moscow. On the other hand, China reported record coronavirus contagions in the country, while a state-run news channel reported that Beijing and other cities are going back into lockdown. Financial markets may turn risk-averse on renewed concerns that Chinese restrictions could interrupt global commerce, trigger fresh supply-chain issues, and result in another flock to the safe haven currency.
EUR
AUDEUR strengthened in the session, determined to acquire the 0.65 handle. After achieving 0.6506, the handle was lost and is now trading at 0.6496. European equity markets closed higher on the day with the DAX up 0.8% to be the best performer, and the CAC gaining 0.4%. Last night we saw the German ifo Business Climate released, which indicated the sentiment of the general public has improved. The index rose more than economists had expected in November, with companies turning less pessimistic about the economic outlook. This is a narrative of a less pessimistic assessment, a recession in Germany is still expected, but not an economic collapse. Forecasts of 85.0 were beaten, posting a figure of 86.3. The percentage of companies surveyed complaining about supply bottlenecks in November was 59.3% vs 63.8% in October. 46.8% of companies surveyed want to raise prices in the coming three months, with the pressure to increase prices sinking continuously. After yesterday’s dovish Fed Minutes interpretation, the overnight positive equity vibes were also aided by the ECB minutes revealing a preference for a 50bps hike in December rather than a repeat of the October 75bps step up. The accounts of the ECB October meeting suggested that one reason for the 75bps increase was that it was fully priced in, and a smaller hike would imply an unwelcome loosening of financial conditions. Using that logic, market pricing for a December hike has been ranging around 50bps (52bps today), so given the ECB is apparently not keen on disappointing/shocking the market, a 50bps hike in December looks preferable. Today in data we will see the release of German Final GDP q/q, tipped to come in at 0.3%.
GBP
AUDGBP trades sideways this morning, trading relatively range-bound between 0.5558 and 0.5593, settling in at 0.5580 at time of writing. Last night we saw MPC member’s Pill and Ramsden cross the wires. Ramsden stated “my bias is towards further tightening, but depends on the economy.” He also stated that he “would consider cutting the bank rate if the economy pans out differently, and inflation persistence stops being a concern.” MPC member Mann also crossed the wires, stating “UK risk premium is still reflected in the sterling, and expectations for inflation are well above the 2% target.” Yesterday’s November UK PMI data showed both manufacturing and services headline indices still stuck below the key 50 level that signals a contraction in activity. Manufacturing output declined at a faster pace than services and with overall volumes of work down for the fourth month in a row. Looking ahead, no further data until next week.
NZD
AUDNZD gained ground last night, with an unexpected rally around 5am from the pair that saw a spike up to 1.0876, before trickling back down to lose the 1.08 handle once again, trading at 1.0792. This morning, Retail Sales q/q was expected to come in at 0.5%, but missed slightly to come in at 0.4%. Core Retail Sales q/q was also released, missing expectations of 0.7%, coming in at 0.4%. Looking ahead, a quiet week for the Kiwi.