AUD Underperforming with Covid Resurgence in China

AUD

Overnight civil unrest in China continues to adversely affect risk sentiment and hawkish FOMC commentary led to a tough last 24hrs for the AUD. The dour mood lead Asian equities to finish Monday’s session in the red with the Hang Seng the worst performer down 1.6%. The ASX closed down 0.4% with anti-covid restriction protests in China denting market sentiment. Gold closed down -0.1%, Silver -0.5% and Iron Ore +2.6%. RBA Governor Lowe yesterday morning apologized for giving people unclear guidance into the RBA’s predicted interest rate path leading out of Covid which initially stated that there would be no interest rate hikes until 2024 (we’ve already had 7 consecutive hikes this year with another one to come next week). By the end of 2021 nearly 300,000 Australians took out loans over six times their annual income, no doubt with the RBA’s guidance forming part of their decision making process. A quieter day in Australia and Asia today with little of note on the calendar.  Attention will remain on the evolving COVID situation in China with ballooning case numbers expected to trigger further restrictions across the country.

USD

Aggressive USD rate hike commentary from the Fed's Bullard yesterday led AUDUSD to a 1 cent plummet overnight, currently opening at 0.6652. US equities were down on close with S&P 500 -1.6%, NASDAQ -1.5% and Dow Jones -1.3%. FOMC member Bullard came out with several hawkish statements last night. He said markets are currently underpricing risk and that the FOMC may need to be more aggressive. He stated “Fed will have to pursue rate hikes into 2023. The FOMC need to get bottom end of 5-7% rate range”. Markets reacted immediately to this with strong USD strength. On a data front today, we have CB Consumer Confidence coming out this evening.

EUR

AUDEUR opens lower at 0.6432 this morning, having briefly given up the 0.64 handle late last night as ECB commentary telegraphs continual interest rate hikes in Europe. Understandably Euro equities were down, with Eurostoxx 50 down 0.59% yesterday and DAX down over 1%. ECB President Lagarde was on the wires saying that the EU economy would weaken and rate hikes still have a long way to go. The ECB would need to continue raising rates for as long as required to bring inflation under control. She also said that inflation would slow eventually though stopped short of saying it had peaked with risks still to the upside. On a data front today we have Spanish flash and German Prelim CPI data coming out tonight.

GBP

A lack of data from the UK meant tight trading ranges here, AUDGBP opening basically on par from yesterday at 0.5557. FTSE 100 closed -0.9% from yesterday. The only data released was CBI realized sales which was worse than expected however this report has been all over the place recently and markets overlooked the missed accordingly. To the day ahead and we have Mortgage Approval and M4 money supply data before member Mann and BOE Gov Baileys talk early into tomorrow morning.

NZD

AUDNZD swung to a low of 1.0752 last night before climbing back up to its current level of 1.0788 this morning. New Zealand has not had any data come out since last Friday, the next data due tomorrow with ANZ Business Confidence. The NZD continues to be the beneficiary of the RBNZ's oversized 75bps rate hike earlier this month.