AUD Rally Short Lived as Risk Aversion Takes Hold
AUD
The Aussie continued to trade lower into the weekend, conceding gains made mid week and returning back last Monday's levels. In equities the ASX was in the red, down -2.2% in what was its worst session since Russia attacked Ukraine, followed by the Shanghai Comp performing similarly also down -2.2 due to pessimistic risk-off market sentiment. The NIKKEI being the exception and best performer in the region up 0.7%. In commodities Gold up 0.3%, and Iron Ore down-1.4%. With last week's theme of central bank meetings now behind us, China remains the major focal point for the region with trade data figures remaining the key event today. The lockdown throughout April is likely to take a toll on trade, as seen with the red tape around Shanghai, Jiangsu and Zhejiang trades impacting exports and likely to continue to soften due to lockdowns. Major disruptions as a result of such actions continue to strangle the fragile logistics network impacting the Aussie market and the world at large, yet the worst could be behind us, and exports could have some snapback once lockdowns are lifted. More Chinese data is also expected on Wednesday with CPI and PPI figures.
USD
After what was an extremely volatile week for the AUDUSD, AUD limped into the weekend lower, opening at time of writing. The USD remained well supported despite a mixed employment report on Friday evening. The Non-Farm Employment Change showed 428K news jobs compare to a predicted 390K and previous 428K. Average Hourly Earnings m/m came in at 0.3%, a little below expectations of 0.4% and the Unemployment Rate arrived missed a projected 3.5%, printing at at 3.6%. US equities overall in the red, with the Dow Jones down 0.3%, the S&P 500 down 0.6% and the NASDAQ performing worst down 1.4% in a heavily fearful market. Over the weekend we also saw two of the Federal Reserve’s most hawkish policy makers defending the central bank on Friday against charges that it had fallen well behind the curve in fighting inflation. Fed Governor Christopher Waller and St. Louis Fed Bank President James Bullard argued that the critics don’t take enough account of the tightening of financial conditions that the Fed engineered even before it began raising interest rates in March. “Credible forward guidance means market interest rates have increased substantially in advance of tangible Fed action,” Bullard said, continuing the support of a bullish USD in the market. Looking ahead the major releases set on the US macro-economic calendar are the CPI and Core CPI data releases Wednesday night this week.
EUR
The Aussie dollar loses it momentum against the Euro, surrendering the 0.670 handle and trading at 0.6692 at time of writing. The Aussie's dip is largely attributable to a worsening risk sentiment than European-centric macro economic developments. However, ECB commentary over the weekend offered surprisingly contradictory opinions which show the path ahead for the ECB is still clouded. First up, ECB’s Villeroy commented that real rates will stay significantly negative and below neutral for some time. Adding, that a too-weak Euro would go against ECB’s inflation target. He went on to say above-zero rates are ‘reasonable’ by year-end. Then ECB’s Nagle and Vasle came out with contrasting remarks to Villeroy, commenting that current inflation is too high, and the window for the ECB to act is closing, adding that the ECB ‘must’ begin the normalising policy, and that the appropriate timing to start ECB hikes is ‘before summer. European stocks softened into the close and ended the session heavily in the res with losses of more than 1.5% for the main indices. Overshadowed by the ECB speak, the data on Friday was of little impact; German Industrial Production m/m falling significantly short of expectations, down -3.9%., French Prelim Private Payrolls q/q up slightly at 0.3% and German Retail sales performing poorer down 0.5%. Looking ahead and it's a slow week of macro data, with ECB President Lagarde the main highlight on Wednesday evening.
GBP
AUDGBP has been steadier than the other major crosses, however AUD still coming of second best, dipping to 0.5714 at time of writing. Softening risk sentiment was the main culprit for the AUD's woes, also illustrated by 0.5% losses on the FTSE. UK PM Johnson is facing continued pressure over his leadership as the Tories had a very poor showing at local election on the weekend, some members of Boris' own party suggesting a vote of no confidence could be on the table within weeks. In more central bank speak, BOE’s Pill said the key message the BOE hoped to achieve on Thursday's rate decision was that there are inherent risks on both sides of economic outlook. When asked what would cause the BOE to pause rates, Pill said the BOE would want to see more evidence inflation expectations and wage and price setting was more consistent with the target. Looking to the week ahead and Thursday will yield a dump of data from the UK, the main highlight being GDP figures.
NZD
AUD has softened here as well, albeit to a smaller degree than the other majors and still holding solidly above the 1.10 handle. The economic damage done by the ongoing Covid wave in NZ will frame the RBNZ next decision on interest rates late this month and Thursday's Inflation Expectation data will provide an insight into these effects for the first quarter of the year.