AUD Mixed as Markets Tussle With Monetary Policy Expectations
AUD
The AUD is trading mixed against its currency counterparts, as market optimism cooled amid recession and inflation fears. Asian equities finished the session higher across the board, with the Hang Seng the top performer up 2.7%. The ASX closed Monday’s session up 1.2%, with tech stocks leading the advance up 2.9%. Commodities performed mixed with Gold -0.2%, Silver losing out -1.1%, but Iron Ore gaining 1.7% and Copper the star performer gaining 2.5%. Today’s RBA minutes will be closely watched but investors are likely to be more focused on tomorrow’s speech from RBA Governor Lowe which is titled “Inflation, Productivity and the Future of Money “– at The Australian Strategic Business Forum. The RBA is in the midst of a rate-tightening cycle, but the cash rate is only at 1.35%, which won’t make a significant dent on surging inflation. The central bank is likely to continue tightening throughout the remainder of 2022. The minutes from the July meeting will be released today, and investors will be looking for clues as to how aggressive the RBA plans to be as it tries to balance hiking rates without choking economic activity and causing a recession.
USD
AUDUSD trades sideways this morning, having touched 10-day of highs of 0.6854 before coming back down to trade at 0.6808 at time of writing. A poor performance from US equities yesterday, with Dow Jones -0.7%, S&P 500 -0.8%, and the NASDAQ losing out -0.8% also. The dollar spent most of the first day of the week on the back foot, losing ground against most of its major rivals. However, it bounced back in the US afternoon, as Wall Street was unable to retain its early gains and turned red. The greenback began easing on Friday as US encouraging data temporarily cooled recession-related concerns. Headline Retail Sales and Core Retail Sales both posted a gain of 1.0% MoM in June, above the forecast and an improvement from the May numbers. As well, UoM Consumer Sentiment improved slightly to 51.0, above the consensus for a contraction at 49.0. The financial markets were pleased with US Retail Sales, which points to consumers’ willingness to spend despite the bite that higher inflation is taking out of disposable incomes. At the same time, strong consumer spending could pave the way for a massive 100bps hike from the Federal Reserve next week, as strong US data indicates that the economy is strong enough to withstand higher rates. There is a pre-meeting blackout of the FOMC ahead of next Thursday’s meeting, but we can still expect plenty of discussion about whether the Fed will deliver a 75 bps or 100 bps increase. The more likely scenario is a 75bps move, but the Fed has surprised before, and a 100bps move is certainly on the table. In the way of data for the US, FOMC Member Brainard will cross the wires early tomorrow morning.
EUR
AUDEUR trades lower this morning, relatively range bound and posting at 0.6711 at time of writing. European equities have performed relatively well yesterday, with the DAX 0.7%, and the CAC 0.9%. The energy crisis in Europe could be a game changer. The Russian Gazprom company has declared force majeure on supplies and said it could not guarantee gas supplies to Europe because of "extraordinary" circumstances. The International Energy Agency has warned the EU must reduce gas consumption ahead of the winter. There can be no doubt that the ECB is late to the game when it comes to the tightening race, but policymakers will be hoping to send the right message when they hike rates for the first time in more than a decade on Thursday, by 25 basis points. Eurozone inflation reached 8.6% y/y in June according to the flash reading and that figure is expected to be confirmed today. The ECB’s decision to outline its plan for a series of rate increases rather than just a couple at the last meeting was seen as very hawkish and the bank will want to underscore its intentions by possibly flagging a 50 bps hike for September. But the Euro, which has been flirting with parity with the dollar all of last week and this week, is unlikely to get much of a lift even if policymakers make another hawkish pivot as worries about the growth outlook are weighing on the currency, while the US dollar is being jointly boosted by an even more hawkish Fed and safe-haven flows.
GBP
AUDGBP trades lower this morning, touching 4-day lows of 0.5680 before coming back up to trade at 0.5695 at time of writing. The FTSE held up similarly to its European counterparts, closing ahead at 0.9%. We heard from BoE’s Saunders, who said further tightening remains likely in the coming months, adding that he doesn’t regard a bank rate of 2% or higher during next year as unlikely or implausible. Saunders said headline GDP growth looks to have slowed in Q2, however, it is harder to know for underlying growth. He commented that the UK government does not set ‘direction of travel’ for monetary policy. Over in the UK, the pound could hit some turbulence amid a flurry of data releases. Kicking things off on today is the employment report, followed by CPI numbers on Wednesday and Retail Sales and the Flash PMIs on Friday.
NZD
AUDNZD trades higher this morning, having touched week-and-a-half highs of 1.1083 before coming back down to trade at 1.1068 at time of writing. In data, on Friday the RBNZ Statement of Intent will be released. Otherwise quiet from across the ditch.