AUD Continues To Consolidate As Global Rates Uptick

AUD

The AUD continued to consolidate throughout the overnight session and posted subdued results across most of the major G10 currency pairs. Asian equities were mixed on Tuesday with the ASX gaining 0.6%, the Nikkei gaining 0.7%, the Shanghai Comp remained flat, and the Hang Seng Index was down 2.4%. In the event on Tuesday, The Minutes from the RBA highlighted that stronger core inflation in Q1 and wage growth had prompted the RBA to bring forward the timing of the first rate increase. “Australian rate market participants have priced in around 11bps of hikes by the next RBA meeting on 3rd May and 33bps of hikes by the following 7th June meeting. The looming prospect of RBA rate hikes should continue to keep the Aussie well bid in the coming months” economists at MUFG Bank reported. Looking ahead, the Fed’s Beige Book will be on the docket this evening, and will contain anecdotal reports gathered from mid-February through early April on the state and trajectory of the economy. It will also contain useful information on the labor market and inflation. A quiet upcoming week in the way of Aussie data, with Flash Services and Manufacturing PMI to come on Friday morning.
 

USD

The AUD/USD pair managed to close the day in the green despite the cautious mood and higher US yields, touching two-day highs last night of 0.7400, and trickling back down to 0.7386 at time of writing. US Equities failed to slow down as US Yield ticked higher (see below) The NASDAQ gained significantly up 2.1% while the S&P 500 finished closely behind up 1.2%, and the Dow Jones gained 1.5%. importantly, US 10-year yields hit a fresh three-year peak, advancing 3bp to 2.89%. A lack of macroeconomic data had market participants likely focusing on the Chicago Fed President Charles Evan, with Evans saying the US Economy will do well with another rates rise, noting that he supports a ‘couple’ of 50basis point increases, which could lift the OCR (Cash Rate) to 1.25%-2.50%. Additionally, US Building Permits printed at 1.87m, beating expectations of 1.83m, and Housing Starts coming in at 1.79m, also beating expectations of 1.74m. Looking ahead to a busier docket tomorrow with Existing Home Sales, Philly Fed Manufacturing Index, and Unemployment Claims featured among the releases.
 

EUR

The AUDEUR pair is trading slightly higher this morning, briefly touching lows last night of 0.6811, and coming back up to trade at 0.6846 this morning. European Equities were largely down with the CAC down -0.8% and the DAX down -0.1%. Geo-political continued to dominate headlines with Lavrov hitting the wires, commenting that Russia will only use conventional arms in Ukraine while the EU was said to give a preliminary opinion to Ukrainian membership in June, however the backdrop of recent negative developments in the Russian-Ukraine conflict (Russia ramping up its assault in the east) are being cited as supportive of further downside for the Euro. Whilst the ECB is expected to do little more than end its QE program and may implement a few rates hikes by the year’s end. To the data, the Eurozone will be in focus on Friday when ECB President Christine Lagarde speaks at this week’s IMF/World Bank meetings. This will happen alongside a jampacked docket for Friday, with French Flash Services PMI, German Flash Manufacturing PMI, and German Flash Services PMI.
 

GBP

The Aussie Sterling pair is trading sideways, scraping 0.5683 earlier this morning, coming back down to trade at 0.5679. The FTSE has lost ground in the last 24 hours, at -0.2%. Traders are looking ahead to remarks from BoE head Andrew Bailey at this week’s IMF/World Bank meetings on Friday. Bailey may strike a more cautious tone on the prospect for further rate hikes, reflecting the recent hawkish shift in BoE language at its last policy announcement. The IMF released its quarterly World Economic Outlook report on Tuesday and downgraded global growth forecasts for this and next year, as expected. Notably, the UK was forecasted to have the weakest growth prospects over the next two years, chiming with the BoE’s increasing concern about the UK outlook with the country currently in the throes of a historic squeeze on living standards. Many FX strategists have labelled money market-priced expectations for a further nearly 150 bps in tightening this year from the BoE as overly excessive.
 

NZD

The Antipodean pair is trading somewhat higher this morning, having touched lows of 1.0951, being offered up this morning at 1.0959. Only low tier data among the docket in the last 24 hours. This morning, Fonterra announcing the details of their latest dairy auction with the GDT Price Index down 3.6% and Whole Milk Powder prices down 4.4%. As for the data ahead, a busier week is expected as the NZD is due for their Q3 CPI data tomorrow, as well as Unemployment claims out of the US.