AUD Forging Ahead Despite USD Bullishness
AUD
The Australian dollar is trading higher against the majority of its peers this morning as rollicking risk sentiment spurred investors on over night. There was no economic data of note yesterday, however RBA Gov Lowe mentioned yesterday afternoon that policymakers are keeping an eye on the labor market for signs of rising costs but the central bank won’t respond unless it will find a significant indication of widespread price pressures. It is worth mentioning that so far, the RBA has not followed the footprints of the United States and The United Kingdom which have both already embarked on tightening cycles with no indication of slowing down. The AUD is performing extremely well considering the disadvantage it faces in interest rate markets. Local Equities performed well yesterday with the ASX closing up 0.9%. Asian equities closed even higher with the Hang Seng closing up 3.2%. Commodities closed lower with Iron Ore & Copper down 0.3% & 0.1% respectively. With the ongoing conflict in Ukraine, Oil was the exception with the commodity consolidating at $110 a barrel. Looking ahead, and Thursday's Manufacturing and Services PMIs are the next piece of local data, markets will be focussed on the developing Covid situation in China.
USD
AUDUSD has forged higher to fresh 4 1/2 month highs, opening at 0.7467 this morning. There was little in the way of data however FOMC Member Mester had a very hawkish view, outlining that 50bps rate hikes would be needed to reign in runaway inflation. Some FOMC members see US interest rates at 3% by year-end which would actually require multiple 50bps hikes. AUD performing extremely well despite US yields advancing steadily, perhaps this is attributable to risk-on sentiment, a view supported by US equities which performed well with the S&P500 up 1.2%, the Dow Jones up 0.75%. Looking ahead, Chairman Powell is expected to speak again tonight, no doubt the ongoing shifts in inflation and conflict in Ukraine will inspire his rhetoric. This will be followed by the release of weekly US crude inventory tomorrow morning.
EUR
AUDEUR is trading at 0.6768 this morning, hold near its highest point since August 2017. There were a few pieces of data which began with the release of the EUR Current Account, printing 22.6B, a 1B EUR deficit from February. ECB’s Guindos commented that inflation is likely to be higher for longer, and that second-round inflation effects must be monitored. ECB’s Villeroy stated that the ECB must not overreact to energy-price volatility, that it should instead follow a gradual normalization path. The Kremlin has said that talks with Ukraine are slow and less substantive than hoped. ECB President Lagarde also spoke however the main takeaway from her speech was that Cryptocurrency was being used by sanctioned individuals to safely move money. European equities performed well with the DAX & CAC closing up 1% & 1.2% respectively. Risk sentiment was helped along by Zelensky calling for meaningful peace talks with Russia and offering a commitment not to join NATO in exchange for a cease fire. Looking ahead, there is little in the way of news save the Eurostat consumer confidence report tomorrow morning. No doubt the ongoing conflict and negotiations in the Ukraine may be a driving force for the markets.
GBP
AUDGBP opens at 0.5630 this morning, testing the resistance level which has formed over the last week or so. With no real data of note yesterday, UK Equities were up but did not perform as well as their European counterparts with the FTSE closing up 0.5%. Looking ahead, there is a slew of data being released tonight which will be kicked off with annual CPI figures. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates. This will be followed by the release of monthly PPI figures. The releases will be closed out with the Annual budget release & a speech by BOE Gov Bailey. No doubt the release of the CPI figures and the ongoing conflict in Ukraine may be a driving factor in his rhetoric.
NZD
AUDNZD remains stable, currently trading at a familiar 1.0720 this morning. There was no news of note coming out of New Zealand and in fact no real data ahead for the next week. NZD has been performing well against other currencies in the same vein as the AUD. Short of any sharp Covid developments here or in NZ, it's hard to see where the volatility is going to come from on this cross in the short term.