UK Economy Contracts Ahead of Key US Inflation Data Tonight

AUD

The Aussie continues to trade in a risk-off environment that’s gripping the markets due to indecision and inflation across the global markets, either flat or down against most majors. This is also reflected in the Asian markets as the ASX and NIKKEI are trading flat, the Shanghai Comp however standing as an outlier trading up +1.5%. Commodities traded in a mixed fashion too as Gold and Silver were up 0.3% and 0.6% respectively while Iron is down -0.7%, dismissing any possible support for the Aussie. Yesterday RBA Assistant Governor Ellis had hit the wires saying the neutral interest rate is uncertain, however hinted towards at least 2.5%. Quiet domestic data releases continue today with just Melbourne Institute releasing Inflation Expectations before noon.

USD

AUDUSD trades flat, struggling to a rebound off of the 2 ½ year lows, currently sitting at 0.6276. If we remove the currency anomaly that was March 2020 (Covid's first outbreak), the pair is sitting at 19 year lows. In data overnight, US PPI m/m and Core PPI m/m delivered above and at expectations at 0.4% and 0.3% respectively, showing stubbornly persistent inflation for producers. A relatively stable session on Wall St overnight similarly with all three indices closing flat on the day.  US yields edged lower, as did Crude Oil which fell 2.6% to $87.05 a barrel. The FED’s hawkish minute meetings were also released earlier this morning as Federal Reserve policymakers agreed they needed to move to a more restrictive policy stance - and then maintain that for some time - in order to meet the US central bank's goal of lowering inflation. Eyes are certainly on tonight’s consumer inflation numbers, with markets expecting a small decrease in both the Core monthly inflation levels along with a reduction in the yearly measure as well. If the results of the Fed's aggressive interest rate hikes don't result in an easing of these inflation numbers, then expect USD to strengthen further as expectations of further rate hikes materialise.

EUR

The Aussie trades flat against the Euro as well, halting this week’s downtrend and sitting at 0.6469. The Eurozone too had little economic data being released, with just the Industrial Production m/m coming in above expectations. ECB’s Lagarde hit the wires this morning with a rather pessimistic view as she cited the world is filled with threats and central banks must work together and Monetary and Fiscal Policy must cooperate with each other. European equity markets had drifted slightly lower on the close, the DAX and CAC closing at -0.4% and -0.3%. Data from Germany and the French is being released later tonight, with the German Final CPI m/m with markets expecting 1.9%  and German WPI m/m and the French Final CPI m/m with markets expecting -0.5%. The Eurozone also releasing its Trade Balance.

GBP

AUDGBP is down significantly from yesterday's open, starting this morning at 0.5654 as the Aussie suffered a drop of more than half a cent despite poor UK data releases yesterday. Overnight the UK’s GDP came in concerningly below expectations, showing a 0.3% contraction compared to an expectation of 0.0%. In addition to this poor result, Industrial and Manufacturing Production m/m delivered well below expectations at -1.8% and -1.6% as markets were only expecting a -0.1% from both. The FTSE had reacted negatively to the economic news, closing down at -0.9%. The BoE had reaffirmed that their emergency bond-buying program would end at the end of this week and switch back to Quantitative Tightening in order to achieve their primary goal of controlling inflation. The BoE have flip-flopped on this policy multiple times – MPC Member Mann hits the wires tonight however with the possibility of shedding some more light on the program.

NZD

The AUDNZD fell significantly lower overnight despite no economic data from Kiwi Land – losing the 1.12 handle overnight we’re currently trading at 1.1181. This could be a prolonged reaction to the RBA's muted rate hike of a meagre 25bps last week, compared to a 50bps increase from its Kiwi counterpart, the RBNZ. No economic data is being released today from New Zealand.