RBNZ Expected to Raise Rates at Midday

AUD

The AUD was mixed if not relatively subdued overnight. Asian Equities offered no direction yesterday, with the Nikkei underperforming down 2.19% while the Shanghai Comp was up a modest 0.9%. The ASX dropped -0.4% as risk-off sentiment erased the tech sector's 2021 gains. As expected, yesterday the RBA confirmed its commitment to maintaining its benchmark rate at .1%, historical lows. Also expected, the RBA decided to leave its QE tapering timeline steady, continuing to purchase $4 billion of government securities a week until at least mid-February next year. RBA governor Phillip Lowe reiterated the official cash rate would stay at .1 per cent until 2024 at the earliest, unless conditions cause the level of inflation to rise sustainably above the central banks 2-3 per cent inflation range before then. RBA Phillip Lowe says the delta outbreak in NSW and Victoria has interrupted the recovery of Australian GDP which has declined materially in September. However, he still thinks the setback in the economic recovery will be temporary. Little in the way of local data today with investors likely focusing on today’s RBNZ Monetary Policy update with Macquarie strategy expecting the first rate change since 2014.

USD

The AUDUSD seemed to have lost steam overnight as we trade at 0.7285, similar levels seen to yesterday. Wall St rebounded strongly overnight with the Nasdaq climbing 1.5%, the S&P 500 up 1.4% and the Dow Jones rallied 1.3%. Oil continued to push higher and gained a further 2% overnight, as did the US 10-Year treasury yield which ticked 5.bps higher to 1.53%. On the macroeconomic front, US data has been mixed. The US trade balance has posted the largest deficit on record in September, with the trade deficit widening to $73.3 Billion in August, coming in worse than expectations of a deficit of $70.8 Billion. On the other hand, the US ISM non-manufacturing PMI ticked up to 61.9 from 61.7 in the precious month, beating expectations of 59.9, although the shortages on raw materials have increased prices and weighed on employment growth. No reaction to the data. A quieter day on the data front with only the US ADP version of employment data tonight, ahead of the official release which will come on Friday night. Plenty of potential for movement tonight.

EUR

The AUDEUR pushed higher to make a slight gain overnight, trading at a rate of 0.6279 at the time of writing. European Equities opened positively and closed higher with the CAC rallying 1.5% and the DAX was up 1.3%. In the Eurozone economic docket on Tuesday, we saw the release of the September final service PMI numbers. Spain kicked things off with at 56.9 (58.2 expected) with Italy at 55.5 (56.5 expected). France came in at 56.2 (56.0 expected) with Germany matching the French results. The Eurozone came in at 56.4 (56.3 expected). ECB President Lagarde, overnight, said that they would pay close attention to the wage developments and inflation expectations to ensure that the inflation expectations are anchored at 2% “We should not overreact to supply shortages or rising energy prices as our monetary policy cannot directly affect those phenomena”, Lagarde added. On the docket this evening the EU will see the release of the Eurozone Retail sales and German Factory orders.

GBP

The AUDGBP is trading marginally lower this morning, trading at a rate of 0.5348 at the time of writing. The London Benchmark FTSE 100 edged higher on Tuesday and ended the day up 66 points of 0.94% to close at 70,077. Overnight, the UK Service sector showed a slightly stronger growth in September but supply chain problems did hold things back. The latest IHS/Markit purchasing managers index came in at 55.4, up from 55 in August which was itself a six-month low. The report showed sever supply constraints and contributed to the escalating inflationary pressures and the slowest rise in new orders since the end of winter lockdown. Rapid rises in energy, fuel and staff costs were passed on to customers in September, said Markit. There is no noteworthy data on the docket this evening.

NZD

The AUDNZD pair is trading similar levels seen to yesterday, trading at a rate of 1.04702 this morning. At midday today we will have the all-important rate decision by the RBNZ. Macquarie Strategy expect a 25bp increase to 0.50%, which would be the first rate hike since 2014, with a larger increase ruled out by the ongoing COVID outbreak in Auckland. One would expect the NZD to strengthen in the event of a rate hike. The Monetary Policy Committee is likely to repeat the message that further policy tightening will be necessary. It should be worth noted that New Zealand bi-monthly GDT price index eased below 1% to 0% at the latest, magnifying challenges for the RBNZ rate change.