Risk Assets Take Stock of Potential Ukraine Boilover
AUD
AUD was varied in its performance leading into the weekend, escalating concerns over a Russian invasion of Ukraine weighing on investor sentiment. Asian equities were largely lower driven by US inflation accelerating to a 40-year high, with the ASX closing 1% lower whilst the Nikkei outperformed its peers on the day gaining 0.4%. Commodity performance was mixed towards the market close, with Gold and Silver gaining 1.9% and 1.8% respectively, Iron Ore losing out -2.1%, and Copper getting smashed with a big loss of -4.2%. In Chinese data, Foreign Direct Investment ytd/y is to be released over today and tomorrow. On Wednesday, China will release CPI y/y, and PPI y/y also. In Australian data, looking ahead – Monetary Policy Meeting Minutes will be released on Tuesday, and Employment Change and Unemployment Rate will be released on Thursday.
USD
AUD opening lower this morning at 0.7131 after the USD attracted safe haven bids going in to the weekend over fears of an imminent Russian attack on Ukraine. Reflecting the riskier sentiment, risk assets were under the pump; the NASDAQ closed the week -2.8%, while the S&P 500 and the Dow Jones finished -1.9%, and -1.4% respectively. US yields retreated from Thursday’s high with the 10 year falling 9.2bps to 1.937%. The risk of conflict in Europe saw a 4.4% spike in oil to $93.90 a barrel while safe haven demand dominated currency markets. A big week ahead of US data, with the FOMC Member Bullard speaking tomorrow, it will be interesting to see if his increasingly bullish tone from last week continues. On Wednesday, PPI m/m is due out, along with Core PPI m/m, and Empire State Manufacturing Process data. On Thursday, Core Retail Sales m/m, and Retail Sales m/m will be released, along with the FOMC Meeting Minutes. The USD will be the main beneficiary of any Russian attack on the Ukraine which is looking like a real possibility.
EUR
AUD had mixed results coming into the weekend having traded briefly above 0.6300 before coming off the boil opening this morning slightly higher than Friday at 0.6281. European equities were soft into the close, the CAC shedding almost 1.3% as risk positions were trimmed. In what will be a quiet week of data from the EZ, tonight ECB President Lagarde speaks on short term interest rates, and tomorrow night we'll see ZEW Economic Sentiment and German ZEW Economic sentiment.
GBP
AUD traded on the back foot here leading into the weekend, opening lower this morning at 0.5255 after touching fresh one-week lows in late trade on Saturday. In Friday's UK data, prelim GDP for the fourth quarter printed slightl worse than expectation at 1.0% (1.1% exp), however overall, the UK’s GDP expanded 7.5% in 2021, leaving the economy back at the same level as in February 2020, prior to the pandemic. UK equities also declined in the risk-off environment, with the FTSE 100 dropping 1%. Looking ahead and it is a slow start to the data for the week until Wednesday will yield CPI y/y data, followed by Friday's Retail Sales figures.
NZD
AUD continues to trade in familiar ranges, opening slightly lower at 1.0720 this morning. On Friday, Inflation Expectations q/q was released at an impressive 3.27%. This morning the NZ Food Price Index was released at 2.7% which is the biggest monthly rise since January 2017, when monthly food prices rose 2.8 percent.
After removing regular seasonal impacts, food prices rose 1.1 percent which is still high. The RBNZ will be watching closely to determine if a further interest rate hike is required a week from Wednesday.