RBNZ Expected to Raise Rates by 50bps at Noon

AUD

Aussie has had a mixed session against its counterparts headed into the mid-week. Yesterday, newly elected Prime Minister Albanese shortly after being sworn in jetted off to the Indo-Pacific Quad meeting to correspond with his US, Japanese and Indian Counterparts, on the back of a Labor win that is looking more and more likely to form a majority. This has offered the market a semblance of stability against majors, in yesterday’s relatively quiet period on the Aussie macro-economic calendar. Yesterday 9am we saw Flash Manufacturing PMI come in at 55.3 against previous 58.8, and the Flash Services PMI 53.0 against previous of 56.1 and not much else. Equities were in the red, with the ASX down -0.3%, the NIKKEI down -0.9% and the Shanghai Comp suffering the worst, down -2.4%. In Commodities we saw Gold unchanged, with Iron Ore enjoying an increase of 0.7%, after Biden insinuated at the Quad Meeting that the US may be loosening some tariffs related to Chinese trade. Today's biggest piece of data is likely to come from across the ditch with the Kiwi Central Bank likely to raise interest rates at midday (see below). Also worth keep an eye on China with the possibility of the CCP loosening Covid restrictions around major cities they have had on lockdown under the 0-covid policy.

USD

The Aussie Dollar has been enjoying an upward trend against the Greenback in the market over the last 24 hours, reclaiming the 0.71 handle currently trading at 0.7107 at time of writing. It seems the pair has stabilized ahead of tonight's FOMC minutes and has held its momentum in a slightly less risk sensitive market. In US Equities it seems last night’s positive risk sentiment was short lived with the DOW JONES the only Index in the green, up 0.2%. The S&P 500 was down -0.8%, while the NASDAQ suffered falling -2.3%. Out of the US we saw a slew of data overnight beginning at 11:45pm with the Flash Manufacturing PMI for May coming in at 57.5, down from 59.2 and below projections of 57.7 followed by Services PMI at 53.5, down from 55.6 and below expectations of 55.2. This left the Composite PMI at 53.8, down from 56.0 and below expectations of 55.7. Following a trend of poor data, April New Home Sales declined by 16.6% to 591k, weaker than predictions of a 1.8% decline to 749k. After this at 2:20am Fed Chair Powell spoke at the American Indian Economic Conference in Las Vegas, yet disappointed many looking for clues on Economic outlook or Monetary policy in a pre-recorded video. All in all slightly less than stellar US data weakening the Big Dollar against the Aussie, giving more credence to the narrative of an Aussie ascent in the markets, yet pundits remain cautious as the significant time spent below the .71 handle leaves the pair weakly supported. Looking ahead, tonight we will see the Core Durable Goods Orders m/m and Durable Goods Orders m/m but the most insightful item of the night may be the release of the FOMC Meeting Minutes for any clue on timing of future Rate Hikes and Economic outlook assessments. 

EUR

The Aussie Dollar is down against the Euro currently trading at 0.6618 at time of writing. Yesterday afternoon's PMI data saw the Services numbers remain better than the equivalent Manufacturing numbers, however apart for the German Manufacturing PMI, all of the data was worse than expectations. Also yesterday the ECB's President Christine Lagarde hit the wires stating she saw the ECB's deposit rate at zero or "slightly above" by the end of September, implying an increase of at least 50 basis points from its current level. Her comments kept speculation alive about bigger ECB rate hikes this summer to fight record-high inflation, partly the result of rising energy prices due to Russia's invasion of Ukraine as well as large public-sector stimulus during the pandemic. Lagarde added a bit more bullish speak to the conference claiming that the ECB plans on moving into positive territory at the end of the third quarter, pushing out of Negative rates, which pundits peculate means the ECB plans on raising rates in increments of 25 or 50 basis points. This is supported by Dutch governor Klaas Knot floated the latter option last week and would mean the ECB could be out of negative rates by the end of September via two hikes worth 25 basis points each which would be a remarkable turnaround for a central bank that hasn't raised rates for over a decade. Equities were in the red with DAX down -1.8%. Looking ahead we shall see the ECB President hitting the wires again tonight perhaps offering a better understanding of timing on those rate hikes.

GBP

The Aussie finds itself up against the Pound Sterling over the last 24 hours trading at 0.5666 at time of writing in a trading pattern that has been mostly moving sideways over the last few days. UK PMI missed forecasts and confirmed a deceleration, with Services PMI for May falling to 51.8 against a forecast of 57. While Manufacturing PMI came in at 54.6 slightly below predicted 54,9 and a previous of 55.8. The readings marked was the lowest in 15 months as UK private sector firms have been cautiously navigating inflation and rising interest rates, the war in Ukraine, China’s lockdowns and Brexit. In UK Equities the FTSE was down -0.4% in a trend seen in most equity markets internationally. Relatively quiet in regards to UK Macro-economic news with little to nothing on today’s calendar outside of MPC Member Tenreyro Speaking Bocconi University in Milan.

NZD

The AUD has seen a rise against the NZD over the last 24 hours currently trading at 1.102 at time of writing in an atmosphere heavily influenced by expectations orbiting around the RBNZ Monetary Policy Statement at Noon today. RBNZ’s assumption and the near-term inflation outlook is likely to be revised higher given average quarterly inflation of +0.9% q/q was previously pencilled in for the remainder of 2022. As a result, the staff may feel compelled to revise up the OCR track. The RBNZ’s cash rate decision and accompanying press conference is expected lift the Cash Rate today by 50bps to 2.00% and expected to continue to signal that more policy tightening is imminent.