All Eyes on RBA at 2.30pm This Afternoon
AUD
The Aussie Dollar has shown some signs of life, rallying against all the majors and bouncing of some recent lows ahead of the highly-anticipated RBA meeting this afternoon. The rally ends a general 3-day sell-off for the AUD, with currency markets looking to take on more risk as most equity markets are firmer this morning. Asian Equities were supported with the Nikkei and Hang Send both up +1.1%. The ASX was the worst performer of the bunch, down -0.2% on Monday, ending the month down -6.3%, the largest loss since the pandemic struck. The AUD was also boosted by stronger commodities, with Iron Ore gaining +1.3%, Copper taking +0.7%. Little in way of local data yesterday to prelude the RBA today, as the central bank rises from its end-of-year slumber, meeting for the first time in 2022 at 2:30 this afternoon. Strong Inflation figures from Q4 and a sharp drop in the Unemployment Rate is expected to see the RBA recalibrate its thinking on the interest rate outlook. Until late last year, the RBA was indicating that a rise in the cash rate would not occur until 2024, before shifting its stance to possibly 2023, with expectations now that Governor Lowe should communicate the possibility of a rate hike this year after previously all but ruling it out. The Bank’s bond purchases will almost certainly be halted in February and forward guidance could be changed significantly. Definitely one to keep an eye on this afternoon.
USD
The AUD/USD has reclaimed the 0.70 handle after short stint in the 0.69s, trading at 0.7068 this morning. The Greenback has eased after currency markets have digested US Federal Reserve’s aggressive tightening signals last week, with attention on other central banks taking main stage. US Equities were boosted with the return of risk to markets, Nasdaq +2.2%, the S&P 500 up +1.1% and the Dow Jones +0.5%. Despite the strong end of month gains, the Nasdaq looks set to close out the month -9.1% lower, the S&P 500 -5.6% lower, and the Dow Jones -3.7% lower. Fed tightening fears have been the major driver of the downside, with markets now expecting five 25bps rate hikes in 2022 and with Fed speakers doing nothing to dampen this speculation. In US data to start the week, Chicago PMI for January printed at 65.2, above expectations of 61.5 but wasn’t moving markets with all-eyes on the RBA this afternoon. Look ahead to US Jolts Job Openings and Manufacturing PMIs tomorrow morning for fresh direction from the US.
EUR
The AUD/EUR trading higher even after see-sawing around the key 0.63 figure, creeping to highs of 0.6321 in the early hours of the morning before resuming its current position at 0.6291. European Equity markets also moving higher into the close with the DAX gaining +1.0% on the day while the CAC closed up +0.5%. In Germany, preliminary inflation figures now see the CPI rising 0.4% MoM in December and 4.9% from a year earlier, both significantly higher than expectations of -0.5% and +4.4% respectively. In other inflation data from Europe, Spanish CPI rose +6.0% y/y in January, a drop from the 30-year highs of 6.5% set in December, but higher than expectations of 5.5%. The extremely strong figures places pressure on the ECB as central banks elsewhere are likely to raise rates sooner rather than later.
GBP
The AUD/GBP also progressing higher, trading to 0.5252 this morning. GBP traders are waiting on the sidelines amid an absence of UK economic data. Though in an interesting turn of events currency markets are also likely awaiting the findings of Sue Gray’s inquiry into the ‘party gate’ scandal involving Boris Johnson. Gray’s report was initially expected to have been published early last week but experienced significant delays as the Metropolitan Police launched its own criminal investigation. With rumours that Gray’s findings could be politically explosive – possibly damning enough to trigger a vote of no confidence in Boris Johnson. The first major set of Macroeconomic data will be when the BoE meets on Thursday this week, with expectations that Governor Bailey and the BoE will repeat that some modest tightening of monetary policy is likely to be necessary.
NZD
The AUD/NZD continuing to leap from strength to strength, moving to highs last seen in June last year, trading at 1.0746 this morning. With little-to-no data out of New Zealand so far this week, the AUD has been allowed to run rampant on the Kiwi, and with the RBA predicted to be hawkish this afternoon, the knife could be twisted into the wound. The only chance for the Kiwi to recoup any losses is when they release Unemployment Data tomorrow morning.