Bank of England Raises Rates, ECB Choosing to Wait
AUD
The AUD has struggled to hold ground against most of the majors with Central Banks in action overnight (see below). Asian equities were largely lower on the close with the Hang Seng outperforming its peers up 1.1%. The ASX fell 0.15% on Thursday led by the tech sector which dropped 5.9%. Commodities were mixed with gold and silver gaining modestly at 0.1% respectively, and Iron Ore outperforming its metal counterparts at 0.7%, however copper underperforming at -0.8%. Local data yesterday showed Building Approvals for December surprising to the upside, an increase of 8.2% compared to an expectation of a 0.9% contraction. The NAB Business Confidence number was also a marked improvement on previous quarter (18 vs -2). After a busy week of RBA action, the local data dries up now for a while, so AUD will be beholden to risk (Russia/Ukraine) and overseas data in the short term. The RBA will release its quarterly Monetary Policy Statement this morning although with such close proximity to the monthly meeting earlier this week, there's unlikely to be anything new in the statement.
USD
The AUD traded steadily yesterday scraping to 1-week highs before opening slightly off this morning at 0.7139. US data was somewhat positive, with a number of data points being released. Unemployment Claims printed at 238K, an improvement over an expected 245k. In other US data, January Services PMI was revised up to 51.2 from 50.9 while the Composite PMI was revised up to 51.1 from 50.8. January ISM Services printed at 59.9, falling from an upwardly revised 62.3 though beating expectations of 59.5 while December Factory Orders fell by 0.4% as expected. Finally, December Durable Goods Orders were revised up to -0.7% from -0.9%. No reaction to the data. The NY Times reported that the US had intelligence that Russia was planning an operation to fabricate a Ukrainian attack on Russian interests in order to justify military action. With the largest military build up in Belarus since the cold war, there is still the potential for this situation to escalate into a flashpoint, something that would be bad for AUD. Wall St remained under pressure into the close with the NASDAQ -3.2%, the S&P 500 -2.0% and the Dow Jones -1.2%, tech stocks globally under the pump. Looking ahead, a big day of data due out of the US night, with the official Non-Farm employment report.
EUR
The AUD tanked against a strong Euro following the ECB press conference this morning, reaching almost 2-month lows, opening at 0.6244 this morning. German 10 year yields rose before the central bank decision, however currency markets were generally subdued as they awaited the release of ECB policy announcements. In the main event, the ECB kept rates on hold as widely expected with the accompanying statement largely unchanged. They maintained the view that inflation was transitory and that rates would stay at current or lower levels until 2% inflation was in sight. ECB’s Lagarde was a little more hawkish in her press conference relative to the largely unchanged statement with much attention paid to inflation. She noted that recent inflation data had surprised to the topside, that risks to the inflation outlook were to the topside and there was unanimous concern at the ECB about prices. She stresses however that there was no change to guidance to forecasts with the March meeting likely to see a new assessment. She also stated that the ECB was closer to inflation targets with prices likely to remain higher for a few months, citing high energy prices, before drifting lower over 2022. She also did not rule out a rate hike in 2022. A quiet week for the Euro ahead in the way of data, with German Industrial Production m/m and Sentix Investor Confidence due out on Monday.
GBP
The AUDGBP opens flat this morning after some volatile trading over last night's much anticipated BoE policy announcement. The FTSE 100 gained modestly, coming in 0.1% higher, and U.K. 10 year yields rose. At 11pm the big data hit the wires, with The Bank of England hiking rates by 25bp as expected though 4 of the 9 members voted for a 50bp hike. They also took a hawkish step in beginning to unwind asset purchases. BOE commentary however was a little less hawkish with Governor Bailey saying that rates were not raised due to the economy “roaring away” and that it would be a mistake to assume rates are on a long march upwards. All in all, the BoE delivered a level of optimism that was already commensurate with market expectations which is why currency settled near flat after the initial volatility. MPC committee member Broadbent will speak later on this evening, which may give clues on key interest rate plans for the future, which may provide a degree of volatility in the AUD. Construction PMI is also due out, and is likely to have a minor impact.
NZD
The AUDNZD has dipped from yesterday morning's fresh 7-month high, opening at 1.0711 this morning. Building Consents data was released this morning, showing stagnation at 0.6% which is exactly the same as last month. New Zealand will see a bank holiday on Monday in observance of Waitangi Day. The next piece of significant data will be Inflation Expectations q/q, due to be released next Wednesday.