ECB Signals Rate Lift-Off Next Month
AUD
The Aussie dollar trades lower this morning after having depreciated overnight as broader market appetite took a turn for the worst in the wake of the ECB’s policy announcement (see below). Asian equities performed poorly with the Shanghai Comp down 0.8% and the NIKKEI closing flat. Locally, the ASX 200 shed 1.4% to 7019.7 points on Thursday, led by losses in financial stocks. Commodities also suffered with Iron Ore & Copper closing down -1.3% & -2.1% respectively. Little In the way of domestic data to cap out the week but a flurry of economic releases elsewhere with the release of the Annual PPI & CPI figures out of China among the headline releases with economists expecting a mild pick-up in CPI inflation and a deceleration in PPI inflation in May due to the recent Covid outbreak and lockdown disruptions in China. Elsewhere, market participants also brace for release of CPI figures out of the US tonight.
USD
AUDUSD pair dipped a cent lower in the overnight session after losing the 0.72 handle and now trades at a rate of 0.7099 this morning. US equities closed the evening in the red with the NASDAQ closing -2.7% & the S&P 500 down -2.4%. There was little reprieve for the pair with the subsequent release of weekly US Unemployment Claims printing 229K, revised from a lower forecast of 202K sent the Aussie into a downward spiral. To the data this evening, markets can expect the release of CPI figures for the month & evidence of broad-based inflation is likely to have remained apparent. Gasoline prices in May continued to rise. Monthly core services inflation, which reached a fresh cycle high in April, is also likely to have remained firm. This will be the main piece of data out of the US until monthly PPI figures are announced on Tuesday.
EUR
AUDEUR opens 30 pips lower at 0.6686 after the ECB decided to leave rates unchanged, driving the pair as low as 0.6650 overnight. European equities reacted poorly with the DAX & CAC closing down -1.7% & -1.4% respectively. To the data overnight, the ECB left rates on hold as generally expected, though announced that they would end QE (Quantitative Easing) on July 1. Furthermore, they were expecting to hike by 25bp in July with a larger hike possible in September if the inflation outlook does not improve. Lagarde then hit the wires, commenting that inflation pressures have broadened and intensified, with the future outlook deteriorating. However, the ECB insists that re-opening and the savings built up from the pandemic can support growth, with no sign of recession in the ECB outlook. Looking ahead there is some Italian Industrial Production data as well as some speak from Lagarde. However, the decision of the ECB is likely to be a driving force for the pair going into the weekend.
GBP
AUDGBP opening at its lowest point since the beginning of June at 0.5682 this morning. AUDGBP being the biggest decline overnight, the ECB’s decision to leave rates unchanged likely being the driving factor. UK Equities ended their session heavily in the red with the FTSE 100 dipping -1.5%. Overnight, PM Johnson also held a conference outlining that the inflationary effects of Ukraine crisis will diminish, and that the cost-of-living crisis can’t be fixed by raising wages to match. He added that reforms will be set out to cut costs for households, however, mindsets need to be shifted from Covid era state spending. Looking ahead, the BOE will release its Consumer Inflation Expectations report. However, it is likely that aftershocks of the ECB decision will guide markets going into the weekend.
NZD
AUDNZD lose some of its momentum overnight after slipping from recent 4-Year highs of 1.11623 with the pair trading at a rate of 1.1114 this morning. Little in the way of data this morning with the NZ releasing its Manufacturing Sales figures for the quarter printing 1.2%. There was no reaction to the news this morning and there is no data of note awaiting markets today.