Currencies Looking for Central Bank Impetus
AUD
The Aussie dollar opens the Wednesday session relatively unchanged (barring the NZD) in what seems to be a brief moment of stability in otherwise volatile market conditions. Asian equities closed largely higher on Tuesday with the Hang Seng and Nikkei up +1.8%, while the CSI underperformed down -0.1%. The ASX ended seven days of losses, finishing +1.4% higher driven by gains in energy and financial stocks. Commodities were all off the mark with Iron Ore the worst off, losing -0.8%, whilst Gold was -0.3% weaker. The Aussie is facing other pressures apart from risk sentiment currently, Iron ore prices have tumbled along with many other industrial metals. Iron ore futures on both the Singapore Exchange (SGX) and the Dalian Commodity Exchange (DCE) are down around 20% from their April peaks. Yesterday RBA Governor Lowe spoke at a Chamber of Commerce event in Sydney. He reiterated his comments from last week, most notably, the RBA expects that inflation will hit 7% in the December quarter and that the cash rate could be at 2.5% later this year. He did lift some spirits domestically, highlighting the strength of the economy with such low unemployment rates whilst also guiding markets to expect a 25 or 50bps hike in the next meeting. Nothing major on the agenda until Governor Lowe speaks again on Friday.
USD
The AUD/USD trading sideways overnight as the 0.7 figure becomes more elusive, currently trading at 0.6966. US President Joe Biden’s firm rejection of the recession fears seems to gain the market’s acceptance and underpins firmer sentiment in markets. Wall St led the rebound in global equity markets with the Dow Jones closing up +2.2% while the S&P and Nasdaq were around +2.5% higher at the closing bell. Data-wise, the US economic docket featured the Chicago Fed National Activity Index, which went down to an eight-month low of 0.01 in May from 0.40 in April. Later, Existing US Home Sales declined by 3.4% to 5.41 million in May 2022, the lowest level since June 2020. US Treasury Secretary Yellen played down recessionary fears stating “Traditional recession measure of two consecutive quarters of negative growth 'has typically worked' but recessions aren't all alike.” Other Fed speakers continue to be vocal, as speaker Barkin emphasized that the Fed needs to be flexible and commented that after the UoM survey, he felt it was possible to up rates by 75 bps again. Later tonight, Fed Chief Jerome Powell will testify before Congress. His pre-prepared remarks will be out ahead of the event. Market players will be looking for hints on future quantitative tightening.
EUR
The AUDEUR dancing on the edge of the now significant 0.66 figure, with the pair ticking slightly lower to trade at 0.6609 this morning. European markets closed higher for the second straight day with the CAC closing up almost +0.8% while gains on the DAX were limited to +0.2%. The Euro held onto its recent gains after some hawkish comments from the ECB. ECB Governing Council member Olli Rehn said on Tuesday, “it is very likely that September rate hike is bigger than 25bps.” His comments casts doubts about the ECB’s latest verdict suggesting a 25bps rate hike in July and September. No worthwhile data until tomorrow’s German Flash PMIs, which are expected to come in at 54.0 for Manufacturing and 54.6 for Services.
GBP
The AUDGBP continues to trade within familiar ranges ahead of an important day for the Britts, trading at 0.5673 at time of writing. Overnight the BoE’s Chief Economist Huw Pill said the BOE is ready to act more aggressively if needed, while inflation rather than the exchange rate is the BOE’s target. Pill also said that there’s worry that using monetary policy to stabilise the exchange rate in the short term would distract the BOE from goals. Pill expects the economy to contract in the current quarter and the BOE would allow growth to weaken to hit the inflation target. A handful of data being released this afternoon though the main feature is inflation data, with CPI YoY being released at 4pm. Markets are preparing for a bumper 9.1% read in May, in what would be a 4-decade high that would sufficiently advance the odds of a recession in the UK. That forecast could signal that a larger move could transpire at the BoE’s next interest rate decision if needed to bring inflation under control.
NZD
The AUDNZD pushing up higher off the back of some weaker data out of NZ this morning to reclaim the 1.10 handle, trading at 1.1022 currently. Nothing too eye-catching out of the Kiwis though the Aussie Dollar benefitted when New Zealand posted a Trade Balance of 263M against a forecasted 580M this morning. The GDT Price Index (the change in average dairy products price) reduced by -1.3% but gets no attention from markets. It will remain a quiet week from the Kiwis as they look towards a long weekend starting Friday.