USD Indominable as DXY Nears 19 Year Highs

AUD

The AUD is higher against most of the majors apart from the indominable USD this morning. Better risk appetite in US equity markets and stabilisation in the broader commodity complex is helping the risk and commodity-sensitive Aussie resist the US dollar’s latest advances and is outperforming the likes of the Euro and  Pound against the Greenback. FX volatility remains elevated with the US dollar the clear winner and, though better on Thursday, the general tone to risk appetite in recent weeks has been weak as investors fret about weakening global growth, central bank tightening, geopolitics and China lockdown risks. A positive day yesterday in the way of Asian equities, with the ASX gaining 1.3%, the Shanghai Comp gaining 0.6%, and the Nikkei the star performer gaining 1.7%. And it was a mixed day for commodities, with gold and silver gaining 0.3% and 0.4% respectively, but iron ore performed dismally, losing out 1.2%. Looking ahead, and only Chinese PMI data due this weekend as Tuesday's all-important RBA interest rate decision looms large. Wednesday’s spicy Q1 2022 Australian CPI numbers are the reason why a 15 bps rate hike to 0.25% is now fully priced in for Tuesday and rates seen ending the year at 2.5%.

USD

AUD is trading lower against the Buck this morning, having briefly touched almost 3 month lows of 0.7052, coming back up to trade just above the 0.7100 handle at time of writing. A strong day for US equities yesterday, with the Dow Jones gaining 1.8%, the S&P 500 gaining 2.5%, and the NASDAQ gaining a whopping 3.1%. To the data, and US Q1 GDP numbers weren't pretty and showed a surprise drop in output, though analysts put this down to surging imports and a slowing of inventory building. In the way of China’s announcement regarding the removal of tariffs including coal, Gao Feng, spokesman of the Ministry of Commerce said at an online media briefing on Thursday, “it is in line with the fundamental interests of American enterprises and consumers to cancel the additional tariffs imposed on Chinese products by the US,” in the face of raging inflation, per China Daily. “Normal communication between the two sides' economic and trade teams are ongoing,” he added. His comments come as a response to US Treasury Secretary Janet Yellen's statement, who said that the US is re-examining its trade strategy toward China, and is open to lowering US tariffs on Chinese goods to address inflation.

EUR

AUD has advanced against the Euro this morning, scraping 7 day highs of 0.6787 yesterday evening, before sinking back down to 0.6759 at time of writing. A positive day for European equities, with the DAX and CAC gaining 1.3% and 1% respectively. In the eurozone, German headline inflation is surging. The war in Ukraine has sent energy and commodity prices through the roof and inflationary pressure has broadened. According to a first estimate based on the regional inflation data, German headline inflation arrived at 7.4% YoY in April, from 7.3% YoY in March. Observers are now calling for double-digit inflation in the summer. This will put pressure on a hesitant European Central Bank to act in order to normalise policy.

GBP

AUD has progressed against the Sterling, trading just shy of a two-week high at 0.5703. A good day for UK equities, with the FTSE gaining 1.1%. Economists at Scotiabank expect AUDGBP to gain multiple cents if next week’s Bank of England (BoE) policy decision rhetoric is dovish and rates are left on hold. "A BoE rate hold cannot be ruled out – though it is far from being our base case. The BoE will likely signal a much narrower path for hikes than markets are anticipating, which presents the main GBP downside risk.” No real data of note from the UK until the BoE meeting which takes place on Thursday evening.

NZD

AUD has gained against its Antipodean cousin, testing a high of 1.0961 on 3 separate occasions late yesterday evening, dipping back down to trade at 1.0943 this morning. In data, Kiwi Trade Balance came in positively at -392m, far better than expectations of -648m. Wednesday next week is the next big data piece in the form of March employment data.