Bank of Japan Announcement Delivers Market Volatility
AUD
AUD trades generally lower across the board, suffering some significant losses against JPY with heavy volatility following the back of the Bank of Japan announcement. Asian equities finished in the red with the Nikkei the worst performer down 2.5%. The ASX closed Tuesday's session down 1.5% after the BOJ took markets by surprise announcing it would widen the YCC target band from +/- 0.25% to +/-0.5%. Japan’s 10-year yield soared 20.5bps to 0.455% - the highest since 2015. BOJ’s Kuroda hit the wires saying market functionality was decreasing as Japan’s market was hit by volatility from abroad. He added that he still believes the effects of policy outweigh the side effects and that it was too early to discuss an exit from policy clarifying that the adjustment today was not a rate hike. A positive session in the way of commodities, with Gold flat, Silver up 0.8%, Iron Ore gaining 0.2%, and Copper advanced 0.7%. A very quiet week for the Aussie in terms of data releases, with yesterday’s highlight being the Monetary Policy Meeting Minutes. The RBA considered pausing its policy tightening cycle this month but decided against it as incoming economic data didn’t yet warrant a change of stance. The Reserve Bank’s board raised interest rates by a quarter-percentage point to 3.1% two weeks ago after considering three options –- 25 basis points, 50 or a pause, the minutes released Tuesday in Sydney showed. This is the first time during the RBA’s eight-month tightening cycle that board members put the case for no change on the table. The discussions come as a majority of economists see two more quarter-point hikes in 2023, taking the cash rate to 3.6%. Looking ahead, nothing until Friday, when we will see the Mid-Year Economic and Fiscal Outlook released.
USD
AUDUSD has declined slightly in the last 24hrs, having tumbled to one-month-lows of 0.6624, before trimming some of its losses to trade at 0.6679 at time of writing. A decent session in US equities, with the Dow up 0.4%, the S&P 500 up 0.3%, and the NASDAQ up 0.1%. U.S 10-year yields rose 10bps to 3.68% while crude oil was 1.2% higher at $76.90 a barrel. Yesterday, the NAHB Housing Market Index came in at 31, below expectations of 34. Last night we had Building Permits falling short of forecasts of 1.48m. Housing starts, however, beat expectations of 1.40m, printing at 1.43m. Tomorrow, we have Current Account data, Existing Home Sales, Crude Oil Inventories, and the highlight will be CB Consumer Confidence, which will give an indication as to how consumers are viewing the long term economic health of the country.
EUR
AUDEUR has lost the 0.63 handle overnight, plummeting to over 10-month-lows of 0.6256, battling to regain the handle but falling short, trading at 0.6284 at time of writing. A weak session in equities out of the Eurozone, with the DAX and CAC both falling -0.4% a piece. Yesterday we had German PPI data and fell short of expectations by a landslide. Expectations were at -1.7% and it missed by more than double, printing at 3.9%. In November 2022, the index of producer prices for industrial products increased by 28.2% compared with November 2021. As reported by the Federal Statistical Office the price increase on producer level slowed down for the second time in succession. In October the increase had been +34.5% and in September +45.8%. Compared with the preceding month October 2022 the overall index decreased by 3.9% in November 2022. That was the second time in a row that prices declined significantly compared with a month earlier (–4.2% October 2022 on September 2022). Current Account data came in far better than expected, with a forecast of -10.3b, printing at -0.4b. Consumer Confidence data came out last night, coming in exactly on expectations of -22. Looking ahead, tonight we have German GfK Consumer Climate with predictions of -38.0. Looking ahead, nothing of note until Friday when we will see German Buba Monthly Report data out of the Eurozone.
GBP
AUDGBP has lost ground, sinking down to over 9-month-lows of 0.5467 before consolidating some of its losses, trading at 0.5479 at time of writing. Equities were flat out of the UK, with the FTSE posting gains of 0.1%. Interestingly, the GBP/JPY cross lost more than 700 pips yesterday amid the rally of the Japanese Yen following the Bank of Japan’s monetary policy announcement. This evening, CBI Realized Sales data is set to come out of the UK, with a forecast of -24. Tomorrow, Final GDP q/q is due out, which is predicted to match previous prints of -0.2%.
NZD
AUDNZD trades sideways this morning, trading relatively rangebound between 1.0503 and 1.0565 in overnight trade. ANZ Business Confidence plummeted to a fresh record low in December, down 13 points to -70. Expected own activity fell from -14 to -26. The RBNZ appears to have achieved shock value with its sharp increase in the OCR, hawkish forecasts, and warning of deliberate recession in 2023. Many indicators are around Global Financial Crisis (GFC) lows. Inflation pressures remain intense, and wage expectations jumped. Trade balance came in better than expectations of -2062m, printing at -1863m. Looking ahead, a quiet finish to the year for the Kiwi, with no further data to move markets.