Fickle Risk Sentiment Shifts in Favour of AUD
AUD
The AUD is up against all majors with the exception of Kiwi this morning. Dovish comments from Chairman of the Federal Reserve signaled a slowdown in rate hikes starting as early as December, this had a flow on effect across currency markets creating a risk on environment, strengthening risk assets such as the Australian dollar. Asian equities were mixed on Wednesday with the Nikkei down 0.2% and Hang Seng up 2.3%. The ASX closed up 0.4% at session highs after softer than expected inflation data pushed real estate and tech higher, while energy and materials also rallied. This overnight AUD rally was also helped along by stronger commodity prices. Gold up 0.8%, Silver 2.3%, Iron Ore 1.4%, & Copper up a big 4.1%. Yesterday we saw Aussie CPI figures y/y print at 6.9%, a lower rate than last month’s print, going against the expectations of an increasing rate of inflation 7.6%. Late this week in the Aussie economic calendar we have RBA Gov Lowe speaking at in a panel discussion titled "Growth and Inflation Dynamics" at the Bank of Thailand 80th Anniversary Conference, in Bangkok. Markets will no doubt be listening closely for any hints on future rate hikes.
USD
7-week highs for the AUDUSD this morning, opening up at 0.6786 this morning after Fed Chair Powell spoke in Washington saying peak rates may be “somewhat higher” than September forecasts and that policy would need to remain restrictive for “some time” with a lot of work needed to restore price credibility. He also warned against prematurely loosening policy and the need to see “substantially more evidence” of falling inflation though offered a dovish slant in saying that the time for moderating the pace of rate hikes could come as soon as December. This slightly dovish tip at the end were enough to shift currency markets fairly drastically, seeing the AUDUSD currency pair jumping 80bps in the hour following the speech. Other important data out of the US last night was the ADP Non-Farm Employment Change, missing its expectation by 69k, coming in at 127k new jobs created, some sources believing this could be a sign that the US’ historically tight labour market may be losing some steam. Prelim GDP q/q coming in slightly above expectation at 2.9%. JOLTs job openings also printed last night, above expectation at 10.33M – still falling from last months number - a hopeful sign for the Federal Reserve as it seeks to curb demand across the economy. Plenty of market moving still to print for the US this week, with the main pieces being; Unemployment Claims w/w tonight, ISM Manufacturing PMI, Average Hourly Earnings, Unemployment Rate, and Non-Farm Employment Change all tomorrow night.
EUR
AUDEUR this morning opens at 0.6519, with a widespread improvement in risk sentiment driving the AUD higher against the majors. The upward trend here was also helped along by the below expectation inflation data that came out for the entire Eurozone last night. With the CPI flash estimate y/y coming in at 10%, below the 10.4%, and Core Flash CPI coming in bang on expectation at 5%. This drop on the headline figure is mostly due to energy price developments, with Food inflation continues to trend up Energy inflation has been the most important driver of the decline going from 41.5 to 34.9%. For the ECB though, tentative signs of inflation peaking are mounting, evidence of a wage-price spiral continues to remain absent and the environment is turning recessionary. This has some economists pinning the ECB’s next hike at 50bps instead of a 75bp. Plenty of small bits of data out for Europe in the coming 2 days, The standouts potential market movers being the Unemployment Rate for the Eurozone, Final Manufacturing PMI, and PPI m/m, and ECB’s president Lagarde participating in a panel discussion on growth and inflation at the by the Bank of Thailand 80th Anniversary Conference, in Bangkok.
GBP
AUDGBP opens at 2-week highs of 0.5630 with the FTSE fighting its way up +0.8%, now up 1% for the year and continuing to outperform its peers. Yesterday’s British Retail Consortium Shop Price Index y/y came in at +7.4%, driven by significant input cost pressures faced by retailers due to rising commodity and energy prices. BOE gov Bailey spoke last night, before the Lords Economic Affairs Committee, in regard to the mini-budget of Liz Truss’ government back on the 23rd of September. Bailey went into how the the Bank of England was forced, in the wake of the event, to intervene in government bond markets following a sharp fall in long-dated UK bond prices (and consequent rise in their interest rates) which could have created a market breakdown within a matter of hours. And how communication between the government and the central bank almost completely broke down in the days leading up to the budget’s announcement, and that they were given little indication of the contents of the fiscal statement. No major market movements off the back of his comments. Later tonight we have MPC Member Pill speaking at an online event hosted by the Institute of Chartered Accountants in England and Wales, And Nationwide House Price Index m/m, and Final Manufactoring PMI, currently pegged at a 46.2 expectation – flat from last month.
NZD
We are slightly down against the Kiwi dollar, with the NZD being boosted across other currency crosses by the same change in risk sentiment that has propelled the Aussie overnight. The AUDNZD opens at 1.07706 slightly down from yesterday. No data out yesterday for the NZD. But tomorrow we have the Overseas Trade Index q/q, an index that Calculates the volume of imports that can be purchased with an equal volume of exports currently pegged at a 0.4% increase, versus last months -2.4%. And RBNZ governor Orr is also participating the panel discussions the Bank of Thailand 80th Anniversary Conference, in Bangkok.