Covid Clashes Coax Volatility
AUD
Yesterday saw a steady climb for the AUD before falling against majors in the early hours of this morning, despite a lack of economic data overnight. Asian equities were largely higher on the close, with the Nikkei underperforming down -0.5%, while the ASX finished the session up +0.3%, led by materials and healthcare stocks. Commentary following a Covid Press Conference in China included measures to boost vaccination rates among seniors, while State Council Spokesperson, Mi Feng, indicated they will continue to fine-tune the Covid-zero policy in order to reduce the impact on society and the economy. Today, we expect low-tier data including Aussie Building Approvals m/m, expected to fall -2.0%, Construction Work Done q/q as well as Private Sector Credit m/m. Both official manufacturing and non-manufacturing PMIs for China are expected to reflect deeper contraction in October as the number of Covid cases increased, impacting both factory and retail activities
USD
AUDUSD opens at 0.6687 while a softer session on Wall ST saw the NASDAQ trading -0.7%, the S&P 500 -0.4% and the Dow Jones -0.1%. Risk appetite had worsened on Monday after Chinese protesters and police clashed over the stringent COVID restrictions, supporting the US Dollar index up to 106.80 this morning. Housing Data was somewhat mixed with the FHFA House Price Index rising +0.1% in September against expectations of -1.2%, while Case Shiller House Prices for September were slightly less than expected. US Consumer Confidence declined again in November, now standing at 100.2 against expectations of 100.0. Lynn Franco, Senior Director of Economic Indicators at The Conference Board, attributed this to recent rise in gas prices. Notably, 18.2% of consumers said business conditions were ‘good’, up from 17.7% last month. Tonight, we see Prelim GDP q/q expected at +2.8%, while the ADP Non-Farm Employment Change is expected at +196k. If the jobs data arrives on-expectations, it could challenge the FED’s communicated narrative of a dovish pivot.
EUR
AUDEUR opens up at 0.6477 as German CPI figures fall short of expectations. Inflation came down in November, with the figure at -0.5%, despite expectations of -0.2%. Regional data suggest that the drop in headline inflation was mainly driven by energy base effects and a drop in prices for leisure and entertainment after the Fall vacation period. Looking ahead, economists are expecting headline inflation to rebound in December, before finally reaching a peak in Q1 2024. Low-tier French data arrives today, while this evening’s CPI Flash Estimate y/y is expected at +10.4%, down from last month’s +10.6%. If on-expectations, the figure would reflect the first turnaround for the Eurozone in 1.5y and may allow the European Central Bank to potentially soften its hawkish rhetoric.
GBP
AUDGBP opens at 0.5591 despite yesterday’s calendar being lite on data. Notably, Governor Bailey’s commentary stressed the UK’s labour market has proven to be much more constrained than anticipated. He also indicated there has been no discussion with the government about their timing and pace of BOE asset sales. Today, we see the British Retail Consortium Shop Price Index y/y. While no expectations have been reported, the figures have been steadily increasing from +0.3% in December 2021, to last month’s +6.6%. The figure will likely be impacted by significant input cost pressures faced by retailers due to rising commodity and energy prices, as well as a tight labour market.
NZD
AUDNZD opens down at 1.0780 with no data reported from the Kiwis in the past 24h. This morning’s Building Consents m/m data indicated -10.7% decline in October, having risen 3.6% in September. The data is typically low-impact, although it does function as a leading gauge of future construction activity because obtaining government consent is among the initial steps in constructing a new building. ANZ Business Confidence data is also expected, with no forecasts posted.