BoE Raises by 25bps as Risk Sentiment Falters

AUD

Volatile trading conditions have persisted for the AUD in what has been a bumper week of Central Bank decisions. Overnight the AUD enjoyed mixed performance amidst a risk-off market mood, courtesy of central bank tightening in the UK, alongside yesterday's weak service and composite PMIs from China. Asian equities finished the session largely down, but the ASX outperformed closing Thursdays session +0.8%, buoyed by energy, mining and tech stocks. A mixed day in the way of commodities, with Gold and Silver gained 0.1% and 0.3% respectively, Iron Ore and Copper lost out 1.5% and 1.1% a piece. The Chinese economy is clearly staggering from Xi’s COVID Zero policy. While policymakers have pledged more stimulus, it is unlikely to be very effective until the hard lockdowns have ended. Today we will receive the Monetary Policy Statement from the RBA which will provide their justification for the larger-than-expected rate hike earlier this week which will be crucial for risk sentiment, especially after the latest inflation and growth fears. 

USD

AUDUSD capitulated overnight, totally erasing the previous days gains, losing almost 2 whole cents from top to bottom and opening this morning at 0.7123. A reversal in risk sentiment was the main contributing factor to the AUD's downside, reflected by a bloodbath on Wall Street during which the NASDAQ (tech stocks) lost a whopping 5%. Additionally, the US Securities and Exchange Commission (SEC) added over 80 Chinese firms to the list of companies facing probable delisting from the US exchanges, which portrayed fresh Sino-American tussles and further weighed on the risk appetite. US 10-year Treasury yields continued to benefit from the recent US interest rate hike, climbing 5% to hit 3.09%. With the resurgence in USD strength, the US Dollar Index (DXY) poked the 19 year high around 104.00. In upcoming data, Employment figures are due to cross the wires this evening.

EUR

AUDEUR trades significantly lower this morning, after coming down from over 2-week highs of 0.6847, coming back down to trade just above the 0.6750 handle at time of writing. European equities are lower, with the DAX and CAC -0.5% and 0.5% respectively. The euro was weaker in the wake of damaging data from the Eurozone and ongoing concerns over the Ukraine crisis. Investors are looking ahead at the prospect of a summer of discontent as global growth fears mount following a series of worrisome economic data and ongoing geopolitical risks. Weak German data that was showing that factory orders in March suffered their biggest monthly drop since last October hammered adding to the predicament faced my the European Central Bank. Looking ahead, German Industrial Production data tonight will precede Italian Retail Sales.

GBP

The AUDGBP trades marginally higher this morning after briefly touching on one-month highs of 0.5819 immediately following last night's BoE rate decision, before trickling all the way back down to trading at 0.5753 this morning. The BoE hiked rates by 25-bps in line with expectations and expressed its concerns about China’s ongoing Covid-19 crisis, which according to the BoE, threatens to hit supply chains again and add to inflation pressures. Thursday’s optimism in the market couldn’t withstand the Bank of England’s forecasts suggesting doubt-digit inflation and economic recession. Interestingly while 6 MPC officials voted for a 25bps hike, 3 actually voted for a 50bps hike. The FTSE outperformed it’s European counterparts, gaining 0.1%. Looking ahead, MPC member’s Mann and Pill will speak this evening.

NZD

AUDNZD trades sideways this morning, having touched intra-day lows of 1.1030, coming back up to trade at 1.1070 at time of writing. Policy makers across the ditch will be keenly observing how the recent Covid lockdowns will play out for the NZ economy and what, if any, change to their recent run of consecutive interest rate hikes will be required.