ECB Begins Policy Normalisation with 50bps Hike

AUD

The Aussie Dollar enjoyed the risk-on sentiment seen in markets overnight,  delivering a strong run against most majors. Asian equities were mixed on the close with the Hang Seng the worst performer down -1.6%. The ASX finished up +0.5%, as a fall in energy and material stocks was offset by a late rally in tech and healthcare. Stronger commodities were also undoubtedly supportive of the Aussie, Gold recovered from a fresh 2022 low of $1,680.82 and now trades +0.5% higher in the $1,711 price zone. Iron Ore taking considerable gains putting up +1.1% though Copper did lose out -0.6%. NAB posted their Quarterly Business Survey Index in which Business Confidence eased back from 15 points previously to 5 points, though little reaction to the data. Despite risk on sentiment in financial markets, the concerns over Europe's gas supply, fresh wobbles in China's property market and the detection of foot-and-mouth viral fragments in imported meat products in Australia could be a weight going forward.

USD

The AUDUSD showing some resilience and continues to fight back to reclaim the 0.69 handle, trading at 0.6927 currently. Wall Street's main indexes climbed for the third session in a row, boosted by a late-afternoon rally and gains in heavyweight growth stocks, including Tesla. The tech-heavy Nasdaq added +1.4% to lead the gains, the Dow Jones climbed 0.5%, while the S&P 500 closed at its highest level since June 9. The bullish approach helped inspire the Aussie as the Greenback was also weaker against most of its peers, demonstrated by the DXY (USD Index) moving from 107.07 to 106.60. The US Department of Labor said that there were 251k Initial Jobless Claims in the week ending July 16, up from the previous week's print of 244,000 and worse than the market expectation of 240,000. The US Leading Index for June printed at -0.8%, down from -0.6% and worse than expectations of -0.6%. No reaction to the softer than expected data. The US will cap off what was been a quiet week data-wise with Flash Services and Manufacturing PMIs later tonight and will look for a turnaround from the previously weaker results.

EUR

The AUDEUR refreshed recent highs this morning despite the ECB raising interest rates for the first time from record low levels, trading at 0.6773 this morning. European Equity markets were a weaker in late trade with most indices either side of flat, though the Italian MIB closed down -0.7%. The Italian losses come ahead of an expected announcement that the Italian parliament would be dissolved, and an election scheduled in coming months after PM Draghi announced his resignation for the second time in recent days. The ECB surprised markets as they hiked rates by 50bp to beat expectations of a 25bp hike. The accompanying statement noted that it was appropriate to take a larger first step and the central bank were ready to adjust all instruments and supported the return of inflation to target with a “meeting to meeting” approach to further rate decisions. The ECB also unveiled its Transmission Protection Instrument (TPI), a new bond purchase scheme aimed at helping more indebted Euro zone countries. The instrument will aim to prevent financial fragmentation within the currency bloc, as rate hikes can disproportionally impact periphery countries such as Italy, Spain, and Portugal which will face large rise in borrowing costs. The raft of data continues this week with Flash Manufacturing and Services PMIs for France, Germany and the EZ.

GBP

The AUDGBP trading at the highest level seen since early June despite little data coming out of the UK, sitting at 0.5773 this morning. Uncertainty remains in British politics as the race to be the next PM starts to heat up, being narrowed down to the final two candidates. Foreign Secretary Liz Truss will battle it out against former Chancellor of the Exchequer Rishi Sunak to replace Boris Johnson and become the Conservative party leader. The final two were chosen by Conservative MPs in a final leadership run-off vote which saw Mr Sunak top the results with 137 and Ms Truss second with 113 votes. The UK will join Europe in releasing their Flash Services Manufacturing PMIs this evening which are forecasted to be on par with previous data.

NZD

The AUDNZD joining the party and seeing green, edging up to 1.11 briefly before easing slightly to trade at 1.1090. The kiwi bulls have failed to capitalize on the interest rate hike announcement by the Reserve Bank of New Zealand (RBNZ). RBNZ Adrian Orr features a consecutive rate hike by 50 basis points (bps), pushing the Official Cash Rate (OCR) to 2.5% in order to combat the runaway inflation rate. No other data to report on from the Kiwis to end the week off.