NZ Inflation Remains High but Decreasing
AUD
The Aussie Dollar trades higher against all pairs barring the EUR, as Fed talk in the US pulled the reigns in on a 100bps hike at the next Federal Reserve meeting. Asian equities finished the session largely in the red with the Nikkei outperforming its peers up +0.5%. The ASX fell -0.7% on Friday’s close, led by worries about falling commodity prices and weaker-than-expected Chinese Q2 GDP. China's economy grew just +0.4% in Q2 from the same period last year, down sharply from 4.8% growth for Q1, as widespread lockdowns to extinguish outbreaks of COVID-19 hobbled the world's second-largest economy. There were signs of recovery in the June data as Industrial production rose to a +3.9% y/y pace in June, up from +0.7% in May. June retail sales climbed +3.1% y/y, up from -6.7% and beating the +0.3% consensus forecast. If China takes a more relaxed and targeted approach to contain Covid outbreaks and stimulus measures increase, a rebound is likely for Q3 and would likely lend support for the AUD. Going forward, tomorrows release of the RBA’s Minutes for the July monetary policy meeting will provide a detailed view behind featuring a consecutive 50bps interest rate hike by the RBA.
USD
The AUDUSD trades stronger this morning with dovish commentary weighing in on the Greenback even with some better-than-expected data from America, currently trading at 0.68 flat. Wall St rallied into the weekend with the Dow Jones closing +2.1%, the NASDAQ +1.9% and the S&P 500 +1.8% while U.S yields ended the day slightly lower. Crude oil climbed +1.8% but remained under $100 a barrel while iron ore finished the session +2.8%. Data released on Friday showed Retail Sales rose above expectation in June, the Empire Manufacturing index climbed unexpectedly to 11.1 and the Consumer Confidence report also surpassed market consensus. University of Michigan’s Consumer Confidence preliminary July report showed an unexpected modest rebound, printing at 51.1 instead of the expected 50.0. The USD was undermined as Fed commentary seemingly indicating that a 75bp hike was coming in July, contrary to earlier talks of a 100bp hike. Waller said that a 75bp hike was his base case, while Bostic said that a 75bp hike was a big move, that moving too dramatically could have negative effects and that policy transition needs to be orderly. It’s an otherwise quiet week ahead for the USD with only Unemployment Claims and the Philly Fed Manufacturing Index later in the week.
EUR
The AUDEUR trading at similar levels seen on Friday morning despite ongoing volatility in markets, the pair trading at 0.6742 this morning. European Equity markets were taking gains into late trade as the CAC put on +2.05 whilst the DAX was the best pick increasing by +2.8%. There was no data at the end of last week out of Europe, though the downward pressure on the EUR in the near-term is driven from elsewhere. Ongoing fears over disruption to the Euro-zone economy from energy supply constraints and fragmentation risks. Those fears are unlikely to ease in the coming weeks and will be tested by the re-opening of the NordStream 1 gas pipeline on 21st July. The ECB also faces a key test in the week ahead when it is expected to announce details of their new anti-fragmentation policy tool. The pick-up in political risk in Italy in recent days has made it even more timely that the ECB steps up to the plate and delivers a credible response to contain fragmentation risks.
GBP
The AUDGBP taking strides northbound even as the Britts remain hush in releasing any data at either end of the weekend, up to 0.5727 currently. Pound traders await key political plays in the UK as the five Conservative contenders still vying to be Britain's next prime minister clashed over tax cuts in a second televised debate on Sunday, with the two frontrunners - Rishi Sunak and Liz Truss - stepping up their battle on the economy. Ex-Chancellor Sunak has gained major acceptance among Tories to be the next PM, but we will find out who it is when announced on Sept. 5th. The next major piece of data to be released will be CPI data on Wednesday and as the UK is highly exposed to the energy crisis and the latest political developments in Westminster, a poor reading could cast a further shadow over the country’s economic prospects.
NZD
The AUDNZD was previously trading with modest gains before the Kiwis released some strong CPI data this morning, the rate cooling off to 1.1016. New Zealand’s second quarter (Q2) headline inflation, as CPI rose to 7.2% YoY versus compared to 7.1% market consensus and 6.9% prior. The details also mentioned that the quarterly readings also strengthened to 1.7% on the Quarter, versus 1.5% expected. Additionally, New Zealand’s Business Services Index for June also rose to 55.4 versus the upwardly revised 55.3 reading. Earlier on this morning, the RBNZ announced new standing repurchase facility rules while stating, “Financial institutions may deposit the local currency with it in exchange for nominal government bonds to keep short-term interest rates at par with the bank's official cash rate.” This didn’t garner the same reaction the strong CPI print had.