European Economy Languishing whilst US Accelerating Ahead
AUD
The AUD was mixed across the board over the weekend, with AUDUSD the biggest loser out of the major pairs. The recently strong US Equities that have been providing support for the AUD gave up ground with the Dow Jones, S&P 500 and Nasdaq all posting losses. Hawkish Fed Reserve commentary (see below for detail) noting inflationary pressure weighed in on the US equity markets, and pulled the rug out from under the AUD. Completing the rout, Commodities were soft and made minor losses with Gold, Iron Ore, and Copper down -0.2%, -0.2%, and -0.7% respectively. The RBA will meet tomorrow and will give their cash rate statement; and it looks likely that interest rate will remain unchanged in the light of last week's inflation figures, which showed price pressures remain extremely subdued. The central bank has repeatedly said it has no intention of lifting interest rates until inflation is sustainably within the 2 - 3 per cent target band, and it doesn’t look like things will change tomorrow.
USD
AUDUSD stumbled over the weekend, briefly dropping into the 0.76s before bouncing back to recapture the 0.77 handle, as it trades 0.7717 at time of writing. It wasn’t just the AUD feeling the heat with the Greenback finding strengths against most majors, the DXY up from 90.623 to 91.254. Dallas Fed President Robert Kaplan said on late Friday that he thinks the central bank should begin discussions on slowing down, or tapering, its $120 billion of monthly asset purchases. “At the earliest opportunity, I think it will be appropriate for us to start talking about adjusting those purchases,” said Kaplan during a talk with the Montgomery County Texas Chamber of Commerce. This is despite Fed Chair Powell saying they would not start to taper its asset purchases until it had seen “substantial further progress” in meeting its two goals of full employment and 2% inflation. A division between Fed members is starting to appear, Powell's next speech this evening will be keenly watched for a response to Kaplan's hawkish tone. Later this evening, the US’s April ISM Manufacturing PMI is likely to remain strong, though preliminary Markit measures showed a deceleration from March’s figures.
EUR
The AUDEUR has been trading within tight ranges over the weekend to sit at 0.6415 this morning. European equities were marginally weaker with the DAX and CAC losing -0.1% and -0.5% respectively. Nations across Europe are starting to relax Coronavirus restrictions with case numbers falling as a result of accelerating vaccination programs, Germany making substantial improvements with over 1 million vaccinations administered in one day. Despite the progress being made with vaccine rollouts, the European economy is still lagging behind the other developed markets, illustrated by a contraction in the German economy of 1.7% and a contraction in the EZ economy as a whole of 0.6% for Q1 this year. Looking to the week ahead and the European data is pretty constant until Friday when ECB President Lagarde is due to speak. Tonight we start with Manufacturing PMIs.
GBP
The AUDGBP made marginal gains over the weekend against the Pound, trading at 0.5584 this morning. The latest remarks from policymakers indicate the Bank of England is confident the economy will rebound strongly in the current and next quarters, as the economy reopens after strong vaccination rollouts have put a hold on case numbers. Hence, growth forecasts will probably be revised higher in the Bank’s quarterly Monetary Policy Report on Thursday, talks of QE tapering by some analysts has spurred attention from investors.
NZD
The AUDNZD posted gains over the weekend to trade at 1.07680 this morning. AUDNZD may see some volatility in the coming days, with the aforementioned RBA interest rate decision and New Zealand’s employment data on Wednesday could move currency markets. Later on Wednesday, Reserve Bank of NZ Governor Orr will speak, due to testify on the Financial Stability Report before Parliament's Finance and Expenditure Committee in Wellington.