China Macro Data Reveals Impact of Zero-Covid Policy
AUD
The AUD has traded mixed against its counterparts, with disappointing Chinese macro data on Monday prompting fresh selling around AUDUSD and a softer risk tone was seen as another factor that undermined the perceived riskier Aussie. The Chinese data was bleak - Retail Sales contracting by 11.1%, Industrial Production numbers contracting by 2.9% (the second worst read on record) and the Unemployment Rate increasing back to 6.1% which is similar to levels seen in March 2020. However sliding US bond yields kept the USD bulls on the defensive and helped limit deeper losses. Apart from China's zero-COVID-19 policy, the war in Ukraine has been fuelling concerns about softening economic growth amid the prospects for a more aggressive policy tightening by the Fed. This, in turn, tempered investors' appetite for perceived riskier assets, which was evident from a softer tone around the equity markets and further undermined the Aussie. Asian equities were up on the close, with 2.6% type gains from the Nikkei and Hang Seng. The ASX finished Fridays session +1.9%, in the third-biggest daily gain this year, with tech rebounding up 6.9%. Gold lost out -0.5%, however Silver outperformed gaining +2.1%, Iron Ore lost out -0.6%, and Copper gained 1.7%. The focus will be on the release of the Reserve Bank of Australia monetary policy meeting minutes today. The minutes from the Reserve Bank of Australia’s May meeting will be scanned closely for hints about the timing and size of additional monetary tightening. Looking ahead, on Wednesday, the long-awaited wage data for 1Q will be released. On Thursday, the employment figures for April will be published, with a chance the jobless rate will fall below 4.0%.
USD
AUDUSD is trading slightly higher this morning, having touched lows of 0.6870 yesterday afternoon, shooting back up 100 pips to trade at the 0.6970 handle this morning. The intraday low around the 0.6890 region was in reaction to shockingly weaker Chinese macro releases. The data underscored the damage caused by COVID-19 lockdowns in the world's second-largest economy and weighed on the China-proxy Australian dollar. The anti-risk flow dragged the yield on the benchmark 10-year US government bond further away from the recent peak of 3.20%. This, in turn, kept the US dollar bulls on the defensive and extended some support to the AUDUSD pair. Nevertheless, the fundamental backdrop supports prospects for an extension of the bearish trend for AUDUSD witnessed over the past one month or so. Market participants now look forward to the release of the US Empire State Manufacturing Index for a fresh impetus later during the early North American session. The data, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment for short-term opportunities around the AUDUSD pair. In data today to be released will be US Retail Sales and Industrial Production figures. Also tonight remarks by several FOMC officials, including the Fed Chair Jerome Powell, will be looked upon for clues about the possibility of a 75 bps rate hike move, which will drive the USD demand and determine the near-term trajectory for the AUDUSD pair.
EUR
AUDEUR is trading sideways this morning, having trickled down to 0.6612 yesterday afternoon, before recovering back up to present at 0.6881 at time of writing. Amidst persistent tensions with Russia, ministers from the Union were unable to agree on a Russian oil import embargo, with Hungary, the Czech Republic and Slovakia being the main opponents. Also, the European Commission reviewed its economic growth projections to the downside amid the war in Ukraine, while they now see inflation rising at a faster pace this year and holding above the European Central Bank target through 2023. ECB’s Centeno has said inflation should remain high in 2022, with no signs of inflation expectations de-anchoring. European equities closed the day with large gains with the CAC closing up around 2.5% while gains elsewhere were either side of 2.0%. Eurozone March industrial production fell 0.8% y/y, from a previous +2.0%. Looking ahead a busy docket for Europe in upcoming data, with Flash Employment Change q/q, as well as Flash GDP q/q will be released this evening. Tomorrow, ECB President Lagarde will speak, and CPI data will be released.
GBP
AUDGBP trades lower this morning, dipping to lows since Friday of 0.5615, posting back up to its current level of 0.5655. In UK equities, the FTSE gained 2.6%. Brexit-related headlines are once again in the spotlight after UK PM Boris Johnson's spokesman noted they want to make significant changes to the Northern Ireland protocol, although clarifying they believe that it is possible within the protocol framework. Additionally, Bank of England Governor Andrew Bailey testified before the House of Commons Treasury Committee. He said he is not at all happy about the inflation outlook and that it is a bad situation to be in, but added that over 80% of the UK's inflation overshoot is due to energy and tradeable goods. BOE’s member Saunders noted that Brexit might worsen UK inflation. Looking ahead, a busy day in data today, with Average Earnings Index 3m/y, Unemployment Rate, 30y Bond Auction and MPC Member Cunliffe to cross the wires today.
NZD
AUDNZD trades sideways this morning, having briefly touched lows early this morning of 1.1010, rising back up to 1.1049 at time of writing. In data yesterday, BusinessNZ Services Index came in at 51.4, below previous level of 51.5. In upcoming data this week, a busy economic docket with GDT Price Index to be released tomorrow, and both PPI data and Annual Budget Release to be coming out on Thursday.