Record Rate-hike – More to Come?
AUD
The AUD faced a very volatile session against most of the majors after the RBA announced a 50bps rate hike. Asian equities were mixed on the close with the CSI200 +0.3% and Hang Seng -0.6%. The ASX fell 1.5% in a broad-based move after the RBA move. The jump in rates was the biggest hike in 22 years, beating market estimates of a 25bps or even 30 point move. Earlier in the day, the downbeat sentiment in the market weighed on the risk-barometer pair. The RBA pointed to a stronger outlook for energy prices (compared to a month ago) as the main reason for the larger-than-expected move. Moreover, instead of strong evidence for faster wage growth in the recent wage data, the RBA noted that the data from its survey-based liaison program is pointing to tight labor market conditions and high future wage growth, allowing a faster pace of policy normalization without too much concern for the labor market’s ability to withstand the policy tightening. The Reserve Bank of Australia's statement says explicitly that, “the Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.” The stronger language that had been set out in May suggests at least another 50bp increase is on the cards over the next few months. Nothing of note coming up on the Australian economic docket.
USD
AUDUSD trades higher this morning, having skyrocketed to 0.7247 just after the announcement from the RBA, then plummeting back down to 0.7153, then floating back up to trade at 0.7229 this morning. A volatile day to say the least. The NASDAQ finished the session +0.9% while the S&P 500 and the Dow Jones both closed +0.8% higher. Crude oil was +1.3% at $119.85 a barrel while U.S 10 year yields fell 7bps and retreated under 3%. The risk-off mood kept sellers hopeful prior to the RBA, though the the initial market reaction to the RBA’s move reversed and shot the Aussie up close to recent May highs, which should prove to be a critical figure around 0.7240. The immediate gains were short-lived, and without any data or noteworthy news, selling pressure sunk the Aussie down to the above mentioned lows of 0.7153. The rebound experienced this morning perhaps a delayed reaction to the aggressive commentary alongside the rate hike. AUDUSD traders will keep their eyes on the qualitative catalysts, amid a lack of major data/events ahead of Friday’s inflation data from the US and China. However, the US Goods and Services Trade Balance for the said month, forecast at $-89.5B compared to $-109.8B previous readouts, can entertain intraday traders.
EUR
AUDEUR has performed strongly in the last 24 hours, having a stellar reaction to the RBA announcement by touching over one-month highs of 0.6769, before trickling back down to trade at 0.6752 this morning. European equities closed lower with CAC and DAX both down -0.7% a piece. Geopolitical concerns still weigh heavily on the Euro, while higher German yields, persistent elevated inflation in the Euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the Euro. German Factory orders fell to -2.7% in April, missing expectations of 0.4%, while Eurozone Investor Confidence for June was -15.8, coming in better than expectations of -21.2. Final readings of Eurozone Q1 2022 GDP may entertain traders ahead of ECB, which is due out this evening. The ECB will meet to discuss its Monetary Policy Statement and Press Conference tomorrow evening, with the ECB President Lagarde & Co. expected to hold rates unchanged, though market players await forward guidance regarding the APP and signals that the bank would shift policy to normal.
GBP
AUDGBP is trading sideways this morning, after having responded well to the RBA’s announcement, shooting up to 5-day highs of 0.5781, before coming back down to hang on to the 0.5740 handle at time of writing. The FTSE had a relatively neutral 24 hours, losing out -0.1%. The UK Prime Minister Boris Johnson won a no-confidence vote, and the GBP reacted positively. The UK economic docket featured the S&P Global/CIPS UK Services and Composite PMIs indices. The Services PMI rose by 53.4, higher than expected but trailed the 58.9 April’s reading. Composite rose by 53.1, showing that activity is slowing, meaning that the UK stagflationary scenario looms. A quiet week in upcoming data ahead for the GBP.
NZD
AUDNZD has done exceptionally in the last 24 hours, having touched 1.1162 – a level that hasn’t been seen since August 2018, and was the only pair to hang on to most of its gains after the RBA’s announcement, trading at 1.1141 at time of writing. Fonterra announced the details of their latest dairy auction with the GDT Price Index rising by 1.5% while Whole Milk Powder Prices fell by 0.3%. No reaction from the Kiwi.