Will RBNZ Prepare Markets for Rate Hikes Today?

AUD

The AUD had a mixed session across all major currency pairs as can see from the colourful opening crosses above. Local equities were subdued overnight, the ASX closed exactly flat at 7332 points while the Shanghai Comp and Nikkei both closed +0.5% higher. The total daily infections have eased in Australia from 120 on Monday, the highest in 10 months, to 100 yesterday. Even so, with new deaths now being recorded, policymakers are worried and rushing for more jabbing. The fears of Covid resurgence have become stronger amid the delta variant's ability to spread faster as well as having some resistance to the vaccines. This recent resurgent infection rise, coupled with the latest economic transition of the pandemic have weighed on risk-safety and in turn the AUD. There is little local data on the docket today (except for the RBNZ rate statement which is mentioned below). Markets and traders eyeing off Aussie employment data tomorrow morning which will be the major piece of Aussie news for the week.

USD

The AUDUSD remains under pressure as USD demand builds, the pair currently trades at a rate of 0.74464 at the time of writing. All three major US Equities fell overnight after the US reported their biggest inflation numbers since 2008. The S&P 500 and Nasdaq were both down 0.4% while the Dow was down 0.3%. The headline CPI smashed expectations and accelerated to 5.4% YoY in June. In addition to this, CPI at the core level jumped 4.5% YoY during the reported month. With such an acceleration in inflation data, US yields also followed higher (the US10y yield is now greater than the AUS equivalent) and the general increase in appetite for USDs was illustrated by a jump in DXY of 0.6%. The data fuelled speculations that the Fed is moving towards tightening its monetary policy stance sooner than anticipated. In focus this evening, the US is due to release PPI & Core PPI data and further digestion of the recent hotter-than-expected CPI data.

EUR

The AUDEUR pair had a modest session of trade overnight, currently trading at 0.6321 at the time of writing. European Equities had no movement overnight, both major indices DAX & CAC closed at 0.0%. in Early data in the Eurozone, both German and French CPI for June were unchanged from the initial readings at annual rates of 2.3% and 1.5% respectively.  No-noteworthy data on the docket this evening. Traders will be focused on tomorrow’s Aussie employment data followed by the Eurozone’s final core CPI data due on Friday evening.

GBP

The AUDGBP pair had a subdued session overnight with the pair coming in to trade at a rate of 0.5387 at the time of writing. The London benchmark FTSE ended on a quiet note, closing at no movement of 0.0% amid the recent infection rises, covid deaths and re-opening worries. The UK on Tuesday evening reported 50 covid related deaths, the highest level since April as the government prepares to remove almost all coronavirus restrictions in England from next week. There is a busy few days ahead for the Pound with the UK releasing Core CPI data this evening in addition to UK Employment data tomorrow.

NZD

The AUDUSD pair trades slightly higher this morning, trading at 1.0718 at the time of writing. It’s a busy day ahead for the Kiwi pair as the focus will be on the RBNZ Monetary policy statement, with Macquarie strategy writing that “The RBNZ will keep the cash rate (OCR) unchanged at 0.25% but the focus will be on the MPC’s tone, though there will be no press conference. Market pricing for the OCR has shifted, including following this week’s positive QSBO business survey. An 80% chance of a 25bp OCR increase is now priced by November this year. A hike at that time would be several quarters earlier than assumed in the RBNZ’s rate path in the May Monetary Policy Statement.” The RBNZ has pointed out that it practises “forecast targeting” which stands in contrast to the approaches of the RBA and Fed who want to see actual inflation sustainably consistent with their targets. It remains to be seen if monetary policy needs to be tightened in New Zealand this year, in part because there remains significant uncertainty around COVID, particularly given the low rate of vaccination in New Zealand.