AUD Starts the Week Soft Ahead of Tomorrow's RBA Decision

AUD

The AUD was lower across the board on Friday, succumbing to downward pressure linked to an expected slower pace of interest rate hikes as well as nervous risk sentiment. Asian equities finished in the red with the Nikkei the worst performer down 1.6%, however the ASX closing Fridays session down 0.7%, but ended the week up 1.3%. A mixed session for commodities, with Gold losing out -0.3%, Silver gained 1.7%, Iron Ore increased 0.6%, and Copper advanced 1%. On Friday, we had Retail Sales m/m, which didn’t shock markets – coming in on par with both the previous result and expectations of -0.2%. RBA Governor Lowe crossed the wires on Friday, stating “In this cycle policy lags are likely to be longer. The Reserve Bank of Australia is attempting to slow inflation without too much negative impact on the economy.” This could be interpreted as the future structure of monetary policy following a ‘low and slow’ approach by the RBA. Today a number of data points will be released, with nothing of significance to note. However, another relatively busy week ahead where the RBA monetary policy decision and Q3 GDP are likely to dominate proceedings in Australia. Commonwealth Bank of Australia, the nation’s largest lender, believes policy makers in Sydney are near the peak of their tightening cycle, while Goldman Sachs sees interest-rate hikes persisting into 2023. The diverging views over the terminal cash rate - CBA predicting one more hike next week to 3.1% while Goldman predicts five more to 4.1% in May - highlight contrasting assessments of the capacity of the AUD$9.7 trillion housing market to weather the sharpest tightening cycle since 1994. CBA’s Gareth Aird thinks extending hikes into next year will overburden households. The key data continues on Wednesday with Q3 GDP.

USD

AUDUSD trades lower this morning, having dipped to lows of 0.6740 before recovering to trade at 0.6790 at time of writing. A strong employment report from the US did little to impact Wall St on Friday with the NASDAQ closing -0.2%, the S&P 500 -0.1% and the Dow Jones +0.1%. US 2-year yields were slightly lower while oil fell 1.3% but remained above $80 a barrel. Saturday saw strong data released from the US, with Total Nonfarm Payroll Employment increasing by 263,000 in November, and the Unemployment Rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported. Notable job gains occurred in leisure and hospitality, health care, and government. Employment declined in retail trade and in transportation and warehousing. This data had a positive impact on the open this morning for the US Dollar. No data of note today, with ISM Services PMI’s coming out late this evening with expectations of 53.5. Looking ahead, PPI data is due Friday evening.

EUR

AUDEUR trades lower this morning, trading this morning at almost 1-week-lows of 0.6438. European markets were marginally weaker at the closing bell with the DAX outperforming to close up 0.3%, and the CAC losing out -0.2%. On Friday, ECB President Lagarde crossed the wires, stating that “We are hoping for short-term and bespoke fiscal policy.” Lagarde’s strategy could be perceived as working fast and aggressively to tame inflation – a stark contrast to RBA Gov Lowe’s statement. Today, Lagarde will speak in Cambodia. PPI data was also released out of the Eurozone, coming in at -2.9% - missing expectations of -2.0%. Today, we will see a slew of PPI data from Europe including Germany and France. Looking ahead, a relatively lackluster week of hard-hitting data, with Lagarde crossing the wires once more on Thursday evening.

GBP

AUDGBP trades significantly lower this morning, plummeting to 7-month-lows of 0.5479. GBP strength can only be attributed to anticipation of a steeper and sustained interest rate hike path required from the Bank of England to curb a worryingly persistent inflation outlook. In equities out of the UK, the FTSE was completely flat. A very quiet week for the Sterling, with Final Services PMI released tonight with expectations of 48.8.

NZD

AUDNZD trades lower this morning, having lost the 1.07 and 1.06 handles, dipping to lows not seen since January of 1.0575 before recovering this morning to trade at 1.0614 at time of writing. On Friday, Gov Adrian Orr crossed the wires, stating “Reserve Bank Governor Adrian Orr stated that New Zealand’s relatively strict border rules were a handbrake on his ability to rein in inflation.” Adrian Orr said that “The border restrictions and subsequent immigration reset forced us to raise the mortgage rates higher than we otherwise would have gone for.” Looking ahead, a relatively quiet week for the Kiwi.