UK Inflation Reaches Fresh 40 Year Highs
AUD
The AUD trades lower against its counterparts amidst a souring market mood, however higher Iron Ore prices help avoid further downside for the Aussie. Asian equities closed lower, with the Nikkei -0.4% and Hang Seng falling 2.3%. The ASX finished the session 0.2% lower, driven by consumer and tech stocks. Gold and Silver are both in neutral territory gaining 0% and 0.1% respectively, however Iron Ore was the star performer gaining a strong 3.1%, Copper underperformed losing out -2.4%. The market sentiment remains fragile amid doubts that major central banks will continue to aggressively hike interest rates to curb soaring inflation without affecting global economic growth. This comes amid the global supply chain disruptions caused by the Russia-Ukraine war and the latest COVID-19 outbreak in China, which continued fuelling recession fears. The worsening economic outlook took its toll on the global risk sentiment. This morning in early local data, the Australian Manufacturing and Services PMIs printed at 55.8 and 52.6 respectively. Whilst both numbers are still in expansionary territory (numbers >50), both numbers are down on the previous month's reading perhaps reflecting the souring mood. Tomorrow evening RBA Gov Lowe rounds the week out with a speech hosted by the Union of the Bank of Switzerland.
USD
AUDUSD trades lower this morning below the 0.6900 handle, scraping 0.6876 – over a one week low, before recovering to trade at 0.6925 at time of writing. A worsening market mood at the beginning of the day pushed the greenback higher, although USD demand receded ahead of US Federal Reserve Chair Powell's testimony before congress. In what was the main event last night, Powell kick-started his testimony saying that the central bank is strongly committed to bringing inflation back down and that the ongoing interest rate increases will remain appropriate. By the end of the event, he added that they would never take any size of rate hike off the table, regardless higher interest rates are likely to be painful and could cause a recession. He said that the Fed is strongly committed to bringing inflation down and added that the pace of tightening would depend on incoming data, alongside the US economic outlook. US equities could not hold to gains and recorded losses of around 0.15% on average, weighing on market sentiment. Likewise, the Federal Reserve’s aggressive tightening, further emphasized by Fed Chair Powell in the US Congress, and fears that the US central bank might take the US economy into a recession, put a lid on the AUDUSD and dragged the major down. On the US data front, the calendar will feature Fed Chief Jerome Powell’s second day at the US Congress, Initial Jobless Claims, and Global PMIs.
EUR
AUDEUR trades lower this morning, reaching 6-week lows of 0.6542, before coming slightly back up to trade at 0.6552 this morning. European equities have not performed well in the last day, with the DAX and the CAC losing -1.1% and -0.8% respectively. European Central Bank Governing Council member Olli Rehn said on Tuesday that it was very likely for the ECB to hike its policy rate by more than 25 bps in September. The positive impact of these comments faded with markets turning risk-averse mid-week. Meanwhile, persistent tensions in Ukraine exacerbate commodity and food prices. German Chancellor Olaf Scholz diminished the chances of a resolution as he noted that Russian President Vladimir Putin still believes in a dictated peace. The EU economic docket is busy, featuring S&P Global PMIs in France, Germany, and the Euroarea. Also, the ECB will host a General Council Meeting.
GBP
AUDGBP trades lower this morning, touching almost 4-week lows of 0.5622 before coming back up to trade at 0.5644 at time of writing. The FTSE performed poorly, losing 0.9%, likely due to fears of Conservatives’ defeat in the UK’s by-elections, which appears to be the latest blow to UK PM Boris Johnson as he struggles to defend the leadership amid the partygate scandal. “The Conservatives are braced to lose two parliamentary by-elections, according to senior party strategists, in moves that could prompt a renewed backlash against Boris Johnson,” per the Financial Times. The most highly anticipated macro economic data of the night was the yearly CPI figure, which edged higher to 9.1% in May from 9% in April which represents the highest level of inflation since the early 1980s during which time there was a global recession spurred on by the Global Oil Crisis. No wonder there are jitters in the UK about rapidly rising interest rates in the face of a probable recession.
NZD
AUDNZD trades sideways this morning, reaching lows of 1.0972 before improving slightly to trade at 1.1013 at time of writing. New Zealand Trade Balance dropped to $263M MoM versus $440M prior (revised from $584M). Further details suggest that the Exports and Imports came in as $6.95B and $6.69B respectively compared to $6.16B and $5.72B revised down previous figures in that order. Tomorrow in data, a blank docket as there is a bank holiday in New Zealand.