75bp Rate Hike Not Enough to Prop up the Greenback

AUD

The AUD continues to fight, stronger against most currency pairs overnight as post Fed rate hike commentary from Jerome Powell said that future rate hikes will be data-dependent, taming the previously aggressive vernacular. Asian equities were mixed on the close with the Hang Seng down -1.10% and Nikkei +0.20%, the ASX finished Wednesdays session +0.2%, after a broadly flat session. Commodities were up with Gold and Iron Ore leading the charge, each gaining +0.8% and +1.3% respectively. The main local data release for the week was Quarterly inflation data. Second-quarter CPI rose +1.8% quarter-on-quarter, taking the inflation rate to 6.1% year-on-year. The weaker than expected data (+1.9% forecasted) downplays the likelihood of any extra bold rate hikes at next weeks RBA meetings. The market is no longer fully pricing in a 50bp rate hike following these inflation figures as it was before the inflation release. The consensus view had been for a slightly higher 1.9% outcome, and now only 44bp of tightening is priced in by futures markets. Some data of lesser importance released today is Monthly Retail Sales and Import Prices at 11:30am.
 

USD

The AUD/USD is largely higher overnight as easing commentary from the Federal Reserve helped the Aussie Dollar to reach the 0.7 figure for the first time since mid-June, reaching a high of 0.7012 before cooling off to trade at 0.6993 currently.  The FOMC raised rates by 75bp as generally expected and made few changes to the accompanying statement. They noted that inflation remained elevated and it was “highly attentive” to inflationary risks with further hikes likely to be appropriate. It was Fed Chair Powell’s softer commentary that markets read in to. He said that the Fed would look for compelling evidence that inflation was coming down, that it would likely to be appropriate to slow rate hikes and another larger than usual hike would depend on incoming data. He went on to add that rates were now in the range of what the Fed though was neutral, that the effects of earlier rate hikes had not yet been felt. The relaxed commentary helped spur Wall St with the NASDAQ closing +4.1%, the S&P 500 +2.5% and the Dow Jones +1.4%.  U.S yields were flat after the widely expected rate decision while crude oil climbed 3.3% to $98 a barrel. Other data out of the US tonight will be Advance GDP q/q as well as Unemployment Claims at 10:30pm.
 

EUR

The AUD/EUR remains unchanged despite losing out earlier in the session, resuming to trade at 0.6855 currently. European equities opened higher across the board with Eurostoxx 50, FTSE100 and DAX all +0.5. The Eurozone was pretty light-on in data yesterday, with only German Gfk Consumer Climate Index and M3 Money Supply being released, neither had any impact. EUR/USD bounced back, getting further away from parity as the Greenback lost out across the board last night. Special attention will be given to German CPI tonight, as an input that could help decide how aggressive the ECB turns out to be at its next policy decision in Sept. Any material cooling of German inflation would weigh on the EUR and also allow sovereign yields to relax globally. 

GBP

The AUD/GBP was the only pair that currently trades in negative territory, though no dramatic change to outweigh Aussie enthusiasm for other pairs, sitting at 0.5749 at time of writing. It’s a quiet week for the Pound as British Politics take centerfold, it is also worth noting that Cable buyers were kept happy with the pair trading at the highest level this month, up to 1.2164. There wont be any major data to end the week off for the UK, with direction moreso coming from the race to become Prime Minister and data from North America.
 

NZD

The AUD/NZD took another leap to trade at fresh 5-year highs, trading at a peak of 1.1178 before coming back to trade at 1.1167. Although the Kiwi Dollar cheered on against the US Dollar, the Kiwi couldn’t contain the Aussies dominance as it celebrated the dovish tone from the Fed. There’s no data of real value except for the ANZ Business Confidence index being released at 11am this morning.