ECB and BoE Hike 50bp, Aussie Suffers
AUD
After a data heavy overnight session paired with a risk off sentiment, the Australian Dollar tumbled overnight against the majors. Asian equities were lower on the close last night with the ASX -0.6%, Shanghai Comp -0.2% and the NIKKEI -0.4%. Commodities were mixed on close with Crude Oil -1.5%, Nat Gas +3.8%, Gold +0.1%, Silver flat and Iron Ore -0.7%. Yesterday saw the Australian Unemployment Rate come in unchanged and on expectations at 3.4%, Employment Change beat forecasts of +19.4K coming in at +64K, 20.9K higher than the previous reading. We also saw MI Inflation Expectations drop 0.8% coming in at 5.2%. There was also a slew of Chinese data misses which didn’t help the deteriorating Aussie, Fixed Asset Investment ytd/y, Industrial Production y/y, NBS Press Conference, Retail Sales y/y, Unemployment Rate all came in well under market expectations. A quieter day ahead on the data calendar with only Flash Manufacturing PMI and Flash Services PMI out of Australia and Foreign Direct Investment ytd/y out of China.
USD
Despite many US data misses, a risk off environment sends the AUDUSD pair into a downward spiral to weekly lows overnight, opening this morning at 0.6705. The risk off environment carried through to US equities, closing lower with the Dow Jones -2.2%, S&P 500 -2.4% and NASDAQ -2.9%. The host of US data released last night was generally on the softer side with December Empire Manufacturing falling to -11.2 from +4.5, coming in short of expectations of -1.0. The Philly Fed Business Survey improved to -13.8 from -19.4 though this was short of expectations of -10.0. Black Friday Sales and Thanksgiving holidays weren’t enough to boost November Retail Sales, which declined by -0.6%, down from +1.3% and well below expectations of -0.2% with all core measures also well short of expectations. The one positive note was a small beat in Weekly Jobless Claims data with initial claims and continuing claims both a little better than expected. Tonight we have the Flash Services PMI with markets expecting a 0.3 increase at 46.5 as well as the Flash Manufacturing PMI expected flat at 47.7.
EUR
The Aussie dollar nosedived against the Euro after ECB President Lagrarde’s hawkish inflation commentary, hitting lows of 0.6295 before slightly recovering to open this morning at 0.6306. The ECB raised interest rates by the expected 50 basis points to 2.5%, which did little to move markets although the following commentary was the catalyst for the steep drop in the currency pair. ECB President Lagarde reiterated the need to continue to hike rates at a steady pace and that 50bp hikes were expected for a period of time. She also indicated that rates would stay at the terminal rate for a period of time to ensure inflation returns to target. European Equities also felt the brunt of decreased risk sentiment with both the DAX and CAC closing lower at -3.3% and -3.1% respectively. Tonight there is potential for further market movement as we have a batch of European Data released with French, German and the Eurozone’s Flash Services and Manufacturing PMI’s along with some mid-tier data including the Italian Trade Balance and Eurozone Trade Balance.
GBP
The AUDGBP experienced a choppy overnight session reaching lows of 0.5476 as BOE raises interest rates to new 14-year highs, the damage was somewhat subdued by the following dovish commentary causing the pair to open only slightly lower this morning at 0.5498. The BOE also raised interest rates by the expected 50 basis points to 3.5%, but the following commentary proved to be more dovish. The decision was split 3 ways with 6 members voting for the 50bp rise while 1 voted for 75bp and 2 voted for no change. In the statement, it was noted that inflation was thought likely to be very high in the near term before falling sharply from mid-2023 though the BOE would respond forcefully if there were more persistent inflationary pressures. Also of note, there was no guidance for the market path of interest rates. Q4 GDP estimates were revised higher though it was predicted that the UK was in recession. Causing a softer drop in UK equities with the FTSE down 0.7%. The possibility for further movement continues tonight with the release of the Retail Sales m/m, Flash Manufacturing PMI and Flash Services PMI
NZD
The AUD/NZD trades lower despite an emptier macroeconomic calendar, sitting at 1.0569 this morning. There was no data of note barring yesterday’s early GDP data, which coming at 2% was above expectations. Another early piece of data this morning was the BusinessNZ Manufacturing Index which posted at 47.4, below the past reading of 49.3. No further data until Monday when the Westpac Consumer Sentiment and BusinessNZ Services Index are released.