RBA To Leave Rates on Hold Today

AUD

The Australian dollar was the best performer on Monday, holding on to gains ahead of the Reserve Bank of Australia monetary policy decision this afternoon. The Aussie was backed by the positive tone of equities and gold. Asian equities finished the session higher with the Hang Seng the star performer up 2.1%. The ASX climbed 0.3% higher on Monday, led by gains in mining and utilities. Both gold and silver remain in positive territory, gaining 0.1% a piece, with iron ore gaining 0.2%, and copper the standout gaining 2.0%. The Reserve Bank of Australia (RBA) is expected to hold rates steady at 0.1% at 2.30pm this afternoon, but expectations for a hike in the second half of the year have strengthened in recent weeks. Those expectations have seen the yield on Australia’s 10-year bond climb nearly 100 basis points in just four weeks. It is currently trading just below 3.0%, the highest level since May 2018. Although analysts remain split on when the RBA’s first rate hike in more than a decade will take place, the majority see liftoff occurring at the June, July or August meeting. The Australian Dollar has taken advantage of these hawkish perceptions, with the currency moving higher versus its major peers through March. However, the 2022 Australian federal election set to take place in May adds a layer of complexity to predicting a rate hike. RBA Governor Lowe may prefer to keep the rate steady so close to an election.

USD

The Aussie Dollar has broken through the 0.7500 handle once again in the last 24 hours, briefly touching highs from October 21’ this morning of 0.7556, before settling in at 0.7543 at time of writing. This is likely due to the continuing turmoil unfolding in Ukraine causing commodities to become increasingly scarce, maintaining its strength despite the COVID epidemic in China. To the overnight US data, US Factory Orders for February fell by 0.5% MoM with the core measure up by 0.5%, both results beating expectations by 0.1%. Durable Goods Orders were confirmed at -2.1%, positively revised from -2.2% with ex transport at -0.6% as expected. U.S equities enjoyed a solid start to the week with the NASDAQ closing +1.9%, while the S&P 500 was 0.8% higher. Looking ahead, the RBA is expected to keep the official cash rate (OCR) at 0.10% in April as the board pledges to “not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range,” and more of the same from the central bank may rattle the recent rally in AUD/USD as the Federal Reserve plans to deliver a series of rate hikes over the coming months. In upcoming data, ISM Services PMI is due out tonight, as well as FOMC member Brainard will speak afterwards.

EUR

The local unit has forged ahead against the Euro to 5 year highs in the last 24 hours, reaching 0.6882 before trickling back down to 0.6876 owing to headlines coming out of Europe; Poland called for an international committee to probe genocide in Ukraine. The EU said Putin must stop war immediately and unconditionally. The EU added that Russian officials are responsible for atrocities and that they must be held accountable. In Germany, Sewing commented that a recession is inevitable if oil and gas supply is disrupted. Despite the downbeat  mood, the DAX and CAC performed surprisingly well in the last 24 hours, gaining 0.5% and 0.7% respectively. Today in data, a cluster of Services PMI data is to be released for Spain, Italy, France, and Germany. This will provide insight into growth momentum in the services sector. Results could show continued strength, reflecting increased willingness to engage in high contact activity post the Omicron wave.

GBP

The AUD has endured strongly against the Sterling, reaching highs of 0.5758 and maintaining most of its gains this morning, holding currently at 0.5754. The FTSE closed up 0.3% despite the risk environment and the UK geographical proximity to the geopolitical turmoil in Eastern Europe. In data, UK consumer confidence fell to -20, its lowest level since the pandemic. Meanwhile, with markets still pricing a lot more than what the Bank of England has guided to markets, the focus will be on the MPC speak this week as it is becoming more and more important. Some commentators looking for continued pushback from BOE on market pricing, with Bailey, Cunliffe, and Pill all making appearances this week. 

NZD

The Aussie has traded slightly higher against its antipodean counterpart, reaching one week highs of 1.0861, coming back down to 1.0859 at time of writing. Nothing in the way of data today, with ANZ Commodity Prices being released tomorrow morning, and GDT Price Index and NZIER Business Confidence being released tentatively tomorrow also.