China Data Misses Expectations, Leaves AUD Vulnerable
AUD
AUD has fallen from yesterday's lofty perch, weighed down by a slew of weak economic data from China and dipping commodity prices. Chinese Retail Sales grew by 2.7% for the year, approximately half of what was expected. Chinese Industrial Production and Fixed Asset Investment also fell short of expectations which sent some risk-related jitters through Asian equity markets, the CSI 300 -0.1%. The ASX closed +0.45%, with real estate stocks leading the advance up 2%. Commodities took a hit on yesterdays close with Gold down -0.2% Silver down -2.4% Iron Ore down -1.9% as well Copper down -1.4%. The domestic focus today will be on the minutes from the RBA’s August board meeting. Given the quarterly Statement on Monetary Policy has been released since the Board meeting, the Minutes may take on reduced importance. One thing we will be looking for, however, is if the Board discussed the merits of lifting the cash rate by 75bps even though it settled on a 50bp hike.
USD
AUD gave back over 100bps of recent gains to the USD overnight, surprisingly poor Chinese data and weakening Commodity prices leaving AUD vulnerable. U.S equities managed to post minor gains overnight despite yesterday's weak Chinese data, the NASDAQ closed up 0.6%, while the S&P 500 and the Dow Jones rose 0.3% and 0.4% respectively. To the data, and Empire State Manufacturing Index (which measures the optimism of 200 New York based manufacturing companies) fell to its lowest level since April 2020 which as you'd remember was a very tough time indeed for the Big Apple. U.S 2 and 10 year yields dipped 4bps each while crude oil fell 3.4% to $89 a barrel. There's a raft of lower tier data releases due tonight, Industrial Production for July probably the most noteworthy.
EUR
AUD off the oil here as well, dipping over 1% as low as 0.6875 before reclaiming the 0.69 handle to open this morning at 0.6908. European equities opened higher with the Eurostoxx 50, and DAX all up +0.5%. Commodities from Oil to Iron Ore fell as disappointing data from China eroded prospects of strong demand. Data from the Eurozone starts in earnest tomorrow night with GDP data, as well as important CPI and Core CPI figures coming out on Thursday which could have a shift on Euro strength. There are increasing signs the Euro Area economy is heading into a recession, at a time inflation continues to break record highs, the energy crisis is far from over, and the ECB is set to continue to increase borrowing costs.
GBP
AUD has lost 1% against GBP in the wake of yesterday's data miss, opening at 0.5822 at time of writing. The FTSE 100 closed higher at 0.5% regaining slightly from last week's dip, offering some positivity in what is otherwise a very bleak economic outlook for the UK. No data from the UK overnight however tonight we will get the latest employment report with the Unemployment Rate tipped to remain steady at 3.8%. Money markets currently price in around an 85% chance of a 50bps rate hike at the central bank's September meeting and a total of almost 125bps of tightening by year end, according to economists. Meanwhile, the Telegraph reported the BoE Governor Andrew Bailey is 'open to review' the central bank mandate after Liz Truss, the front-runner to become the next prime minister, criticized its approach to inflation.
NZD
AUDNZD has traded sideways, opening at a very familiar 1.1030 this morning. Tomorrow, the Reserve Bank of New Zealand is widely expected to raise its policy rate by another 50 basis points, with markets zeroing in on the central bank’s latest forecasts as it juggles its fight against inflation with mounting recessionary risks. If the RBNZ does raise by 50bps tomorrow, that would represent almost a 3% increase to the cash rate in just over one year.