BoE Echoes The Fed's Transitory Inflation Story

AUD

The AUD had a relatively subdued session across most major currency pairs, GBP excluded. Local Equity markets in China had no movement with the Shanghai Comp and Nikkei both closing at 0%, while the ASX posted modest losses of -0.3% but should have a good day today following a bullocking run in US equities overnight. Commodities were down overnight, Gold was down -0.1%, Silver down -0.2% and Iron Ore was down -0.3%, respectively. Markets have remained on edge after last week’s price action and tension with China has continued to undermine commodity driven demand. China has filed a lawsuit with the WTO over Australia’s anti-dumping and anti-subsidy measures on Chinese exports on railway wheels, wind towers and stainless-steel sinks. This follows Australia lodging a similar lawsuit over Chinese tariffs on Aussie wine exports earlier in the month. There is no-noteworthy data headed into the weekend so should be a quiet run into the the weekend.

USD

The AUSUSD pair made some minor gains overnight, currently trading at a rate of 0.7583 at the time of writing. There’s been a sense of calm in the markets after last week’s FOMC Policy updates fades into the background, markets largely ignored commentary from the Fed officials overnight, instead content in the expectation that monetary policy will remain accommodative for an extended period. The Fed's "transitory inflation" story has regained traction despite the changes to the dot plot that surprised markets last week. US Equities were up overnight, helped by bipartisan support for President Biden’s 579B infrastructure spending plan (almost 1Trillion AUD!). The S&P500 up 0.6%, Nasdaq up 0.7% while the Dow Jones had the biggest gain of 1%. The buoyant mood should carry into today as Asia wakes up to equities in the green. To the data ahead, and US Core PCE index due this evening and FOMC Member William speaking on Monday.

EUR

The AUDEUR pair traded within narrow ranges with the pair currently trading at a rate of 0.6356 at the time of writing. European Equities closed higher, the DAX was up 0.9% and the CAC closed at a gain of 1.2%. Germany's IFO survey came in at 101.8 (100.7 expected), marking its strongest reading since Nov 2018, showing a broad-based and strong recovery which is good news for the Eurozone. There is little in the way of data for the Eurozone over the next few days with the German Central Bank President Weidmann speaking on Monday and German Retails sales data on Tuesday.

GBP

The AUDGBP pair had a positive session of trade overnight, the pair currently trading at a rate of 0.5446 at the time of writing. The pound tumbled after the BoE released its statement from the latest monetary policy committee which wasn't as upbeat as markets were hoping. The BoE kept policy setting in place but was clear to indicate it sees the current inflation forecast as transitory (the same message we're getting from the US Fed) and while it is likely prices will rise in excess of 3%, there is an expectation they will moderate once supply constraints and pandemic pressures ease. FTSE, the London benchmark index ended 0.51% higher. There is no-noteworthy data this evening with MBC member Haldane speaking on Monday week and final UK GDP figures on Wednesday.

NZD

The AUDNZD pair lost some ground overnight the pair currently trading at 1.07399 at the time of writing. NZ Trade Balance this morning which showed some decent numbers, the monthly outcome improved from 414M to 469M. Further, Exports grew from NZD 5.40B to NZD 5.86B while Imports jumped from NZD 4.986B to NZD 4.398B. no real significant data scheduled for release this evening.