US Interest Rates Increase by 75 Basis Points to 1.75%

AUD

The AUD reacted strongly to a plethora of US data released last night, trading in positive territory against all of its major counterparts this morning. Asian equities finished the session mixed with the CSI 300 the top performer up 1.8%, following a strong data release for economic activity in May. The ASX closed Wednesdays session -1.3%, in a broad-based sell-off led by tech. Commodities are up across the board with Gold and Silver gaining 0.8% and 1.1% respectively, Iron Ore gaining 1.5%, and Copper gaining 0.4%.  Some strong data was seen out of China yesterday, with Industrial Production y/y coming in at 0.7% which was well above expectations of -1.0%, and Retail Sales y/y coming in at -6.7%, an improvement on the presumed -7.0% figure.  Aussie bulls returned to the table after the US dollar failed to cheer the Fed’s 75 basis point rate hike overnight. The pair’s gains could also be linked to the softer yields, firmer equities and upbeat gold prices, not to forget expectations of firmer jobs reports and RBA’s aggression. The US Federal Reserve (Fed) announced the biggest interest rate hike since 1994 to battle inflation fears. The US central bank also revised up inflation forecasts for this year and the next while cutting down the inflation expectations. However, the Fed’s rejection of the odds of a 100 bps rate increase and Chairman Jerome Powell’s measured comments seem to have drowned the Treasury yields and the US dollar afterward. The policymakers also signaled either a 50 bps or 75 bps rate hike in the next meeting. It’s worth noting that the latest reaction to the Fed’s rate hike isn’t a signal for the AUD/USD pair’s trend reversal as the trader's eye monthly jobs report for May and Melbourne Institute’s Consumer Inflation Expectations for June. RBA’s Quarterly Bulletin will be important to watch too.

USD

AUDUSD trades higher this morning, breaking through the 0.7000 resistance level, reaching 3 day highs early this morning of 0.7025, coming back down to trade at 0.7007 at time of writing. US equities performed well yesterday, with the Dow Jones gaining 1%, the S&P 500 gaining 1.5%, and the NASDAQ was the star performer gaining 2.5%. Last night, the US Federal Reserve raised rates by 0.75%, however this was only enough to bring the Fed's actions in-line with already bullish market expectations. Combined with Chariman Powell's measured comments that 75bps increases would not be commonplace, the USD actually weakened in the aftermath of the main event. In its statement, the FOMC reaffirmed its strong commitment to return inflation to the 2 percent target. They added that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.” Unemployment Claims due for release from the US tonight.

EUR

AUDEUR trades significantly higher this morning, breaking through the 0.6700 handle reaching 0.6720, trickling back down to trade at 0.6701 this morning. In equities a positive day of gains, with the DAX gaining 1.4% and the CAC gaining 1.3%. The ECB announced an ad hoc meeting ‘to discuss current market conditions’. ECB’s Wunsch hit the wires saying the next 150-200bps of ECB hikes are ‘no brainers’, adding that ECB gradualism doesn’t exclude hikes of more than 25bps. The EU confirmed it will launch two new legal proceedings against the UK, following the Governments plan to overrise part of the NI Protocol. Eurozone Industrial Production MoM in April was 0.4% up from a prior -1.8%. ECB commentary coming in the aftermath of the unscheduled meeting with headlines indicating that the ECB had instructed committees to prepare new crisis tools with it considered “adequate” to do so. In geo-political news, headlines indicated that Putin and Xi had spoken and had discussed economic and trade co-operation as well as the situation in Ukraine as well as “military-technical ties”. A quiet end to the week with a scatter of insignificant data releases.

GBP

AUDGBP trades slightly higher this morning after bouncing off lows of 0.5712 to trade at 0.5755 at time of writing. In equities, a positive day with the FTSE gaining 1.2%. In the UK, tonight the BoE is likely to hike rates by a further 25bps to 1.25% at its monetary policy meeting today amid elevated inflation. UK headline CPI hit 9% YoY in April and the BoE is forecasting inflation to peak at over 10% later this year. Markets will be focused on any signs of policymaker hesitation after one MPC member voted against last month’s hike. The grim outlook for the UK economy will be a key consideration – this week, the OECD downgraded its UK forecasts and sees growth stagnating in 2023.

NZD

AUDNZD trades higher this morning, having touched the 1.1149 level which is close to 4-year highs, coming slightly off the boil to trade at 1.1142. At time of writing, NZ Q1 GDP data missed expectations badly and actually showed a contraction of 0.3% (an increase of 0.6% was expected). NZD is weakening as I write as a result of this figure. No more data due from across the ditch today.