US Exits Recession, ECB Raises by 75bp

AUD

The Aussie dominance from yesterday’s session subsided overnight, the AUD now travelling with mixed outcomes against the majors in what was a bustling overnight session. Asian equities were mixed on Thursday with the Nikkei falling 0.3% and Hang Seng up 1.3%. The ASX closed 0.5% higher reaching the highest level in six weeks with energy and materials leading the gains. Commodities were slightly weaker with Gold +0.3%, Iron Ore -0.2% and Copper losing -0.7%. Signs that inflation continues to remain stubborn domestically and abroad were shown with Quarterly Australian Import Prices increasing by 3.0%, markets were expecting an increase of 0.8% however there was little reaction to the data. The RBA also released the 2022 Annual Report however there was little implication for markets. Today will see the release of Australian PPI q/q at 11:30am, a leading indicator of consumer inflation and is penciled to come in at 1.3% for the quarter. Looking ahead to next week will see the RBA likely raise interest rates on Melbourne Cup Day, with markets pricing in a 25-basis point move.

USD

The AUD/USD travelled as high as 0.6522 in late trade yesterday, before the US posted some strong growth numbers and eased the pair to resume trade at 0.6453 currently. Another mixed session on Wall St with the Dow Jones closing +0.6%, while the NASDAQ and the S&P 500 closed -1.6%, and -0.6% respectively.  US 10-year yields fell 6bps and under 4% while crude oil traded +1.2% higher to $89 a barrel. The US economy met the technical definition of a recession when GDP fell in both the first and second quarters of the year, however turning it around last night by exceeding expectations and expanding by 2.6% (2.3% exp.) in the third quarter. But the bumper headline reading masks some less encouraging trends beneath the surface, as Consumer Spending Growth has slowed, and Personal Consumption grew by 1.4% in the third quarter, compared to 2% in the second. With the Fed signaling that it is prepared to accept weaker activity, and even tolerate recession, to get inflation under control, next weeks widely expected 75bp rate hike won’t be the last move from the Federal Reserve. So while the US may have just exited a technical recession, who knows what lies ahead. All eyes will be on Core PCE Price Index tonight as one of the last key inflation gauges ahead of next weeks Fed meeting.

EUR

The AUD/EUR sits higher this morning despite a 75bp rate hike from the ECB, now trading at 0.6473. European markets also mixed into the close with the CAC shedding -0.5% on the day though the FTSE and DAX closed with modest gains. The ECB hiked rates by 0.75% in line with expectations taking the cash rate to 1.5%. In the accompanying commentary the ECB said it expects to raise interest rates to further battle and bring inflation down from a 40-year high. The Euro weakened slightly in response as markets zeroed in on a subtle change in its language that suggested it may only hike once more before stopping its tightening cycle. Also hurting the Euro was ECB sources saying that the decision to hike rates by 75bp was not unanimous and that 3 members had voted for a 50bp move. Also worth noting that the ECB plans to recalibrate its targeted longer-term refinancing operations (TLTRO) to help restore price stability over the medium term, ensuring consistency with broader monetary policy normalisation process. Another data dump from Europe tonight but will likely have less impetus than last night, with French Flash GDP q/q, German Prelim CPI and GDP the more notable of the bunch.

GBP

The AUD/GBP remains steady at yesterdays trading levels with the focus in currency markets remaining elsewhere, trading at 0.5575 currently. The only piece of data from the Britts yesterday was CBI Realized Sales, which improved from a previous reading of -20 to +18 for the month. The survey of about 125 retail and wholesale companies asks respondents to rate the relative level of current sales volume, provides a leading indicator of consumer spending. Not much else to report on from the UK, as it appears the chaos in British Politics softened for now.

NZD

The AUD/NZD lost ground overnight despite no action from the Kiwis in data or macroeconomic policy, trading at 1.1073 this morning. The quiet week looks to extend on into next week as well with only Unemployment numbers on Wednesday likely to provide any excitement.