ECB Maintains Persistent Inflation will Prove Transitory

AUD

The AUD was mixed across most major currency pairs due to a mild risk-off environment. Asian Equities lost ground on Thursday with the Shanghai Comp down -1.2% while the Nikkei was down 1%. Australian shares eased down on Thursday as the ASX 200 closed 0.2% lower, with energy and material shares down the most. Commodities were relatively subdued with Iron Ore, Gold and Silver taking a minor dip into the red. To the data, September Australian Retail Sales will be released this morning and Macquarie Strategy has expectations of solid growth of around 2% m/m following three months of falls amid lockdowns. The RBA will also release private-sector credit figures for September today. Growth in housing credit will be watched closely after it had slowed a little in monthly terms in July and August, though that could partly be related to the lockdowns.

USD

The AUDUSD pair advances higher in the session overnight, trading at a rate of 0.7539 at the time of writing. Since Tuesday, the pair had remained trapped around the 0.75 handle, failing to gain traction either way. However, after worse-than-expected US GDP figures for a third quarter spurred a greenback sell-off (see below). US Equities closed at record levels on Thursday as traders cheered on positive earnings results with the S&P 500 and the Nasdaq up 1.4% and 1%, respectively. The DXY (US dollar index) which measures the greenbacks performance, collapses 0.6%, down to 93.30 and the 10-Year note was up 3bps at 1.561%. In the event, US Q3 GDP rose by 2.0% QoQ, lower than expectations of 2.6% while Personal Consumption was +1.6%, higher than expectations of 0.9%, Q3 Core PCE was 4.5% as expected. Also released and weekly jobless claims data was better than expected with initial claims falling slightly to 281k to beat expectations of 288k while continuing claims fell to 2.243mio, down from 2.480mio and much better than expectations of 2.420mio. Despite recent disappointments on the US Nonfarm Payrolls report, the labor market shows some signs of coming back to life. A lack of local US data this evening will keep investors focus on the Australian Retail Sales & PPI data today.

EUR

The AUDEUR pair bucked the trend to make a loss overnight. However, still maintains its five-month highs at 0.6451 this morning. European Equities were little fazed by the ECB’s decision to slow its bond-buying programme (see below) with the DAX declining a minor -0.1% while the CAC was up 0.8%. In early data the Spanish Q3 unemployment rate came in at 14.57%, above the forecast of 14.1%. CPI for October was 2% MoM, well above the forecast of 1.2%. German unemployment was unchanged at 5.4% in October, with the number of people unemployed falling by 39k. The ECB left monetary policy settings unchanged and released an almost identical statement. Lagarde offered little in the way of new information as she spoke of strong economic recovery, balanced risk to the economic outlook and the need for ongoing support with the ECB ready to adjust all monetary policy tools as required. On inflation she noted that it is likely to rise further in the short term and that this period would last longer than previously expected before easing over 2022, expressing confidence in the view that it was transitory. She also pushed back on market expectations of rate hikes by saying this did not align with the ECB guidance. There’s a flurry of European data on the docket this evening with EuroZone GDP & CPI Data being of key note.

GBP

The AUDGBP is trading at similar levels seen to yesterday with the pair trading at a rate of 0.5461 at the time of writing. The FTSE 100 ended modestly lower on Thursday, recouping earlier bigger losses in the afternoon following Wall Street progress. At the close, the UK Index was 0.1% lower at 7,249.47. Over the wires, the Office of Budget Responsibility, in the UK, on Wednesday, estimates that the long-term impact of Brexit will be more than twice as great as Covid. It thinks that Brexit will reduce the productivity and hence the GDP per capita, by 4%, while the impact of covid will only be 2%. Little in the way of local data with investors keeping a keen eye on the EuroZone GDP & CPI data.

NZD

The AUDNZD was sideways and trading among levels seen to yesterday at a rate of 1.0473 at the time of writing. Both antipodes trade among other as factors like worse-than-expected US GDP figures have kept investors looking for riskier assets such as the AUD and the NZD. An absent NZ docket has left both pair’s movement at the dynamics of the US dollar. Traders will now turn their attention to today’s Aussie Retail Sales and PPI data today.