BOE Surprises with 15 bps Rate Hike Overnight
AUD
AUD trading has been volatile during the past few days against most of its peers in Asia, Europe and the United States, a theme continued overnight. In regional markets Asian equities were largely higher on the close with the Nikkei the star performer up 2.10%, the ASX underperformed its peers and closed down 0.4% on Thursday. However, commodities saw much more favorable movement with Iron Ore and Copper closing up 2.9% & 2.6% respectively. In local data, the employment figures yesterday were very encouraging printing an increase of 366.1K new jobs created, considerably better than conservative forecasts of 203K. The Unemployment Rate also reduced from 5.2% to 4.6%, also smashing expectations of 5.0%. Despite the bumper employment report, AUD was only mildly higher after the release. To round out his final speech for the year, Governor Lowe outlined that the RBA insisted that economic conditions won’t be ripe for an official interest rate hike until 2023 despite the market already moving in anticipation of a move in 2022. Perhaps the resistance of the RBA to generate excitement in the local economic recovery is undermining the AUD's ability to capitalise on opportunities presented. No data set for release to round out the week.
USD
AUDUSD saw a tumultuous last 24 hours with the pair trading at a weekly high of 0.7223, before relinquishing gains early this morning to open at 0.7184, slightly higher than yesterday. US equities showed mixed responses with the NASDAQ closing down 2.5% and the S&P 500 and the Dow Jones trading flat. US weekly jobless claims were generally better than expected with initial claims at 206k to be modestly short of expectations of 200k while continuing claims fell from 1.999 mio to 1.845 mio to beat forecasts of 1.943 mio. Housing data was also better than expected with November Housing Starts rising 11.8% to 1.679 mio to beat forecasts of a 3.1% increase to 1.567 mio while Building Permits were up 3.6% to 1.712 mio to beat forecasts of a 0.5% increase to 1.661 mio. With a lack of data coming out of the US today, the pair will likely take a breather after what has been a bustling week.
EUR
AUDEUR traded as high as 0.6384 overnight and slowly settled back into 0.6336 this morning to show a small loss on the last 24hrs. To early European data, Services and Manufacturing PMIs returned mixed results across France, Germany and the EZ as a a whole with EUR weakening in the lead up to the ECB meeting. Then in the main event, the ECB left monetary policy settings unchanged as widely expected though altered the QE program with the PEPP to expire in March 2022. Inflation forecasts out to 2023 were revised higher with growth forecasts revised lower in 2022 though higher in 2023. ECB President Lagarde noted that the economic impact of Omicron was yet to be assessed, that the ECB had flexibility and could adjust programs in either direction and that is was unlikely that rates would rise in 2022. EUR strengthened in the aftermath leading to a retracement of the AUD's previous gains. Looking ahead and there's only German ifo Business Climate released tonight.
GBP
AUDGBP traded a similar pattern to AUDEUR, trading higher overnight before losing all of its gains and more to open lower at 0.5387 this morning. The Bank of England surprised the market overnight by raising the bank rates 15bp to 0.25% and noted that some modest tightening in monetary policy was likely. This comes as a mild shock as voting to change rates had held firm at 7-2 in November until yesterday where an 8-1 vote turned the tide. Inflation was seen to be peaking around 6% in April 2022 before falling back later in the year while Q4 growth forecasts were revised lower with the Omicron strain creating significant uncertainty and was likely to weigh on growth in Q1. Sterling made similar gains against other pairs with GBP/USD popping from around 1.3280 to hit highs near 1.3360 in a matter of seconds before making its way to highs of 1.33755. British equities reacted well to this with the FTSE closing 1.3% up from yesterday. The VIX however, mirrored a heightened level of risk sentiment with the heavy flow of data releases yesterday and closed almost 9% higher. With monthly retail sales figures to be released this afternoon, a positive figure may highlight consumer spending habits coming out of Omicron lockdowns.
NZD
AUDNZD is trading at 1.0558 after peaking at daily highs of 1.0595 yesterday morning. This comes after the lukewarm quarterly GDP numbers released in New Zealand yesterday. With a lack of any significant market news, New Zealand’s trade Balance data on Monday may provide further guidance as to how the pair will trade going into next week.