Markets Now Pricing In a 45 Basis Point Hike from The Fed
AUD
The Aussie dollar is trading slightly lower against the majority of its peers this morning after a roller-coaster ride overnight in the wake of the US inflation data (see US section below). There was little in the way of local data yesterday save the Melbourne Institute's Inflation Expectation printing at 4.6%, outpacing expectations by 0.2%. China also released its yearly money supply figures printing a 0.6% increase on expectations to 9.8%. New loans figures in China also increased to 3980B Yuan for February. Local equities performed modestly with the ASX closing up 0.3%. Asian equities performed similarly with the Shanghai Comp closing up 0.2%. Commodities were mixed with Iron Ore closing up 1.7% but Copper closing down 0.1%. Rounding out the week locally, RBA Gov Lowe is expected to testify at a virtual hearing before the House of Representatives Standing Committee on Economics later this morning.
USD
AUDUSD is trading at 0.7164 this morning, opening well short of its overnight high of 0.7240. Strong US inflation data and uber hawkish rhetoric from the Fed’s Bullard overnight weighed on Wall St and spurred U.S yields. U.S CPI climbed to a 40 year high of 7.5% in January. US CPI for January rose 0.6% MoM and 7.5% YoY, higher than expectations of 0.4% and 7.2% respectively. Core measures also exceeded expectations coming in at +0.6% MoM and 6.0% YoY, both higher than forecasts by 0.1%. Comments then from Fed’s Bullard who said he supported 100bp of hikes by the start of July and would support a 50bp move, adding that the Fed should consider an inter-meeting increase. As a result, U.S 2-year yields rose 24bps to 1.60% and the 10 year was +10bps to 2.04%. USD was initially sold but then fought back with interest as markets adjust expectations, now pricing in a 45 basis point hike in March, having risen from 33 basis points at the start of the week. In Wall Street reacted poorly with the S&P 500 & Dow Jones closing down 1.8% & 1.9% respectively. Looking ahead the ramifications of last night's US CPI data and Fed rhetoric should drive market movement as there is no data of note save the US Prelim UoM Consumer Sentiment survey tonight.
EUR
AUDEUR is trading at 0.6269 after failing to maintain an overnight high of 0.6310, markets getting buffeted around in the wake of the US developments. The European Commission raised EZ 2022 Inflation Forecast to 3.5% from 2.2%. The commission added that it saw 2023 Inflation At 1.7%. ECB’s Rehn continued the trend of trying to walk back recent hawkishness as he said that increasing rates too fast would hurt the economy and employment. European equities had little reaction with the DAX & CAC closing +0.1% and -0.4% respectively. Looking ahead Germany is expected to release its monthly CPI and WPI figures tonight. We note this morning that the US State department has also told US citizens in the Ukraine to leave now. Escalation in the Ukraine will not be good for the AUD.
GBP
AUDGBP is trading at 0.5286 this morning, dipping hard from its overnight high of 0.5317. BOE Gov Bailey spoke early in the morning reiterating the importance of an open international system, and effective financial regulation. The RICS House Price Balance printed a 4% increase from last month to 74% in February. The data represents the percentage of surveyors reporting a price increase in their designated area. UK equities saw little movement with the FTSE 100 closing up 0.4%. Looking ahead there is a slew of data which will be kicked of with the release of Quarterly Prelim GDP figures. This will be followed by the monthly release of GDP, Industrial Production, Trade Balance and Construction Output.
NZD
AUDNZD opened at 1.0723 this morning after failing to break past an overnight high of 1.0770. NZ released its Manufacturing Index early this morning and printed 52.1 which outlines that that surveyed manufacturers had positive sentiment about the economy (a number above 50 indicates expansionary sentiment). NZ will also release its quarterly inflation Expectations later today which could influence the RBNZ as to a third consecutive rate hike in a couple of weeks time.