Bank of England Says More Interest Rate Hikes Necessary

AUD

The local unit has had mixed performed against its major currency pairs as market try to weigh up Russia – Ukraine’s woes, China’s Covid-19 outbreak, and higher inflation prompting global central banks to tighten monetary policy conditions. Asian equities finished the session mixed on Monday, with the Hang Seng the star performer up 1.3%. The ASX closed 0.1% higher, with mining stocks leading the gains. In commodities, gold and silver both lost out -0.9%, however iron and copper both performed in the green, gaining 0.4% and 0.5% respectively. The 2022-2023 budget is set to be presented today and could have an impact on the RBA’s outlook. The upcoming week will see February’s preliminary Retail Sales figures cross the wires. Building permits for February and a Markit manufacturing PMI print for March will follow later in the week. Analysts expect to see that PMI figure rise to 57.3 from 57.0. A better-than-expected set of data would likely fuel already rising rate hike bets for the Reserve Bank of Australia (RBA), benefiting AUD further. Alternatively, disappointing data could halt AUD’s recent rally. A reversal in market sentiment would also weigh on the risk-sensitive currency, which could be induced by an escalation in Ukraine or an uptick in Covid cases in China.

USD

The Australian dollar slumps from YTD highs last night of around 0.7540, opening this morning below the 0.7500 handle at 0.7490. Risk appetite continues to be influenced by geopolitical jitters and the ongoing Covid-19 outbreak in China, which affected Shanghai, one of the largest cities, weighing on market sentiment. Meanwhile, Russia – Ukraine woes keep grabbing the headlines. Late in the North American session, sources linked to the Financial Times expressed that Russia is prepared to let Kyiv join the EU if it remains militarily non-aligned as part of ongoing ceasefire negotiations. That headline lifted US equities, which made a U-turn and ended Wall Street’s trading session in the green. This led to the NASDAQ trading +1.3%, while the S&P 500 was +.7%.  US yields were flattish while crude oil fell 9% to $103.30 a barrel. In upcoming data, on Wednesday evening the US Job Openings is to be released with an expectation of 11m, and CB Consumer Confidence with a forecast of 106.9.

EUR

The Aussie has lost some minor ground in the last 24 hours against the EUR after pushing to 5 year highs last night of 0.6877, opening this morning at 0.6818, driven by continuing volatility of the Russia and Ukraine conflict and strong commodity prices driving the strength of the Aussie.  European equities closed higher with the CAC +0.5%, and the DAX +0.8%. Eurozone money markets are now pricing in 60bps of ECB rate hikes by year-end, up from last weeks 50bps. Euro-area inflation data will cross the wires on Friday evening, perhaps leaving the European Central Bank in a tight spot, having to choose between Ukraine economic consequences or rising price pressures. 

GBP

The AUD continues to perform strongly against its British counterpart, briefly touching the 0.5735 handle and trickling back down to open at 0.5718, with cautious comments from BOE’s Governor Bailey on rate outlook causing the pair to push higher on Monday. BOE’s Bailey said the UK is facing a very large shock to income, and there is no policy tool to alleviate said shock. He added that he is seeing evidence of growth and demand slowing and that in this current circumstance tightening is still appropriate.  The FTSE closed marginally lower, losing -0.1%. Monetary Policy Committee’s Broadbent will speak tomorrow evening, however looking ahead to next week with little on the domestic front, the ebb and flow of risk appetite will dictate price action for the Pound.

NZD

The strength of the local unit against it’s antipodean counterpart continues, reaching 1.0876 overnight, a high not seen since April last year, and settling in slightly lower this morning at 1.0862. In upcoming data this week, ANZ Business Confidence is due out on Wednesday morning. AUD has been winning this battle of recent due to squaring of record-breaking AUD shorts leftover from 2021 that are being unwound, as well as commodity price increases relating to supply shortage concerns.