China's Infrastructure Stimulus Supportive of AUD

AUD

The AUD had a bumper session yesterday evening to refresh recent highs against most G10 currencies, as news of Chinese infrastructure stimulus encouraged commodity currencies. Asian equities gained on Thursday, with the Nikkei climbing +0.6% and Hang Seng up +2.7%. The ASX ended +0.7% higher with uranium stocks rising as Japan’s PM announced plans to restart nuclear power. With no data coming out locally, currency markets looked for impetus from elsewhere in Asia. Whilst many economies in the western world have well and truly started to tighten the grip on economic policies to tackle inflation, China’s State Council added 300 Billion RMB in stimulus to spur economic growth and help fill the hole of a retreating property market. Asian currencies including AUD and the Kiwi both gained as traders bet that Beijing’s stimulus measures will shore up demand for commodities and revive growth of the world’s second-largest economy. Premier Australian macroeconomic data hard to come by at the moment, with next week equally baron. Look to the Jackson Hole Symposium for any major direction in the short term.

USD

The AUDUSD creeping higher to approach the all-magical 0.70 figure, not quite reaching that level but sitting at 0.6974 this morning. Wall St also enjoying the risk sentiment as it ticked higher into the close, the Dow Jones ending the day up +1.0% while the S&P and Nasdaq were up either side of +1.5%. Risk sentiment remained ‘rosy’, even as the US entered into a technical recession overnight with the release of the Preliminary GDP for the Quarter, as the US economy contracted by -0.6% in Q2. What softened the blow for the US was the contraction was better than expected, with forecasts suggesting the print would come in at -0.7%. In Fed talk, speaker Bostic said more strong data could tip the Fed towards 75bp rate increases while he remains split between 50bp and 75bp rate hike in Septembers meeting. Markets remain in wait for Powell’s appearance at Jackson Hole, with his speech tonight the most keenly awaited event, and could give markets a better indication of future Fed rhetoric.  US Real Personal Consumption and core PCE price inflation, the Feds preferred inflation gauge will also be released for July today.

EUR

The AUDEUR on a crusade to refresh the newest highs since April 2017, grazing the 0.70 figure before cooling off to trade at 0.6993 currently. European markets were less receptive of the risk mood, with the CAC -0.1% lower on the day while the DAX was up +0.4%.  Business confidence in Germany worsened slightly in August as companies turned more pessimistic due to rising energy costs and the threat of gas shortages. The Ifo business-climate index fell to 88.5 points in August from a revised figure of 88.7 points in July. The ECB published the account of their July monetary policy meeting which mentioned that short term inflationary pressures had intensified, and divergence between position on monetary policy has been partially behind half of the Euro’s drop. In July, some members argued in favour of a 25bp rate increase. No major data penned in for release today or tonight.

GBP

The AUDGBP reached the highest level since late 2017, continuing the strong session for the Aussie. The British pound, continues to be underpinned by a bleak outlook for the UK economy. It is worth recalling that the Bank of England earlier this month indicated that a prolonged recession would start in the fourth quarter. This, to a larger extent, overshadows expectations for a 50bps rate hike by the BoE in September. Yesterday’s CBI Realized Sales did come in much better than expected, with retailers reporting solid growth in sales in the year to August and are expecting another firm rise next month. This is highlighted by Year-on-year retail sales grew at the fastest pace in nine months (+37% from -4% in July). Retailers expect another quick rise in sales next month (+31%). This data is a rare contrast to what has been rather bleak data from the UK.

NZD

The AUDNZD trading back above 1.1213, again new highs since 2017. Although the Kiwi also saw benefit from Chinese-inspired risk on sentiment, our Antipodean counterparts couldn’t hold back the Aussie’s surge. The currency cross ignored a hawkish tone by the Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr at the Jackson Hole. Orr highlighted the consequences of soaring price pressures in his commentary. The impact of the higher inflation rate is clearly visible on NZ Retail Sales, with data landing at -2.3%, lower than the prior release of -0.5% on Thursday.