RBA Remains Conservative with a 25bps Hike

AUD

The Aussie Dollar remains mixed, trading either down or flat against most major currencies this morning after the first of three central bank decisions coming from the RBA yesterday afternoon & a slew of data releases across the world last night. The RBA hiked interest rates by expected 25 basis points to 2.85%, stating that interest rate increases into the future should be expected which will be guided by data, assessment of the outlook for inflation and the labor market. They also released an inflation forecast, supposedly peaking at around 8% to end this year with CPI Inflation to float around 4.75% over 2023 and above 3% over 2024. Yesterday from China, the Caixin Manufacturing PMI released above expectations at 49.2 vs 48.5 however still denotes a contractionary outlook. Asian equities ended the trading session strong, with the ASX up 1.7%, Shanghai Comp up 2.6% and the Nikkei drifting slightly up at 0.3%. Commodities overall were relatively quiet with the exception of Copper up 2.8% as Gold and Silver floated lower by -0.1% and -0.4% and Iron Ore closing up at 0.4%. Looking ahead and domestic data is light today with just Building Approvals m/m due before midday.

USD

The AUD opens flat against the USD this morning just under the 64c handle at 0.6394, gains made throughout the day which had peaked at 0.6463 crushed by mostly positive US data overnight. US October ISM (Institute for Supply Management) Manufacturing printed at 50.2, beating estimates of 50 and indicating industry expansion however just by the skin of their teeth. ISM Manufacturing Prices however fell well below estimates at 46.6 vs estimates of 53. Construction Spending m/m had beat expectations of -0.5% and manages to stay positive at 0.2%, suggesting construction projects are growth orientated. Final Manufacturing PMI had also printed at 50.4, beating expectations by slightly more as estimates were contractionary at 49.9. US JOLTS naturally had the most impact on the markets and it surprised meaningfully on the upside for September with job openings measuring at 10.72m vs expectations of 9.75m which allowed the US Dollar to regain its strength across multiple currencies. In US equities, it was a relatively quiet session overnight as investors begin to prepare for the much anticipated FOMC meeting scheduled for tomorrow morning (Sydney 5am).  Wall St was trading lower into the close with the NASDAQ -0.9%, the S&P 500 -0.5% while the Dow Jones closed -0.2% Tonight's Fed Interest rate decision is the main event of the week and markets are expecting a 75 bps hike, taking the policy rate to 4.0%. Fed Chair Powell is likely to guide towards further hikes in his press conference citing underlying inflation momentum and the continued acceleration in core services inflation.  Market reaction may be driven by any signs that there could be a step-down to a lower pace of hikes at the December meeting.

EUR

AUDEUR opens flat in what was a quiet trading session with France and Italy enjoying bank holidays, opening at 0.6474. German Import Prices m/m, a measure of inflation for businesses and consumers, released yesterday with a large miss delivering at -0.9% vs estimates of 0.7%. In other news ECB’s Lagarde hit the wires commenting that the possibility of a recession has increased and the destination on rates has not yet been reached. She continued by saying the longer inflation stays high, the bigger the risk it presents. European equities closed slightly up with the DAX up 0.6% and CAC up 1.0%. The data continues to flow tonight with Manufacturing PMIs from the biggest European economies as well as for The Zone as a whole.

GBP

The AUDGBP opens slightly down at 0.5569 with mixed data being released from the UK overnight. The Nationwide HPI m/m, which is a report on the UK’s housing inflation, was delivered much lower than estimates at -0.9% vs -0.4%. Final Manufacturing PMI however beat expectations of 45.8 at 46.2, although still representing a contractionary economy. The FTSE took the positive manufacturing PMI number and ran, closing higher at 1.3%. The BOE completed its first sale of bonds bought under the Quantitative Easing program (attempt to stimulate spending in economy), selling £750m bonds at auction. Tonight, we have the BRC Shop Price Index y/y which is a measure of new building approvals, however investors eyes are on tomorrow night’s BoE’s Official Bank Rate announcement.

NZD

The Aussie continues to fall against the NZD, losing the 1.10 handle and opening down at 1.0945. No data releases overnight, however this morning New Zealand released a mixed employment data with its Employment Change q/q comfortably beating expectations of 0.5%, delivering at 1.3%. The Unemployment Rate however delivered slightly below expectations of 3.3% vs 3.2%, and Labor Cost Index q/q met expectations of 1.1%. RBNZ Gov Orr also hits the wires this morning in a conference labelled the Financial Stability Report.