USD Dominates as Fed Reinforces Prolonged Monetary Policy Tightening

AUD

A volatile weekend has seen the Aussie dollar drop considerably, spoiling what was a strong second half of last week. Strong Chinese data released midweek was quickly in the rear vision mirror with Fed Chairman Jerome Powell delivering his much anticipated address at the Jackson Hole Symposium on Friday night (see below). Asian equities were higher to close the week, with the Nikkei rising 0.6% and Hang Seng +1%. The ASX finished 0.8% higher on Friday driven by the gains among banks, however it is likely to be a tough day for Asian equities today if they follow the US bourses' lead from Friday. Commodities were also down which didn't assist the fast weakening AUD. To the local data and today we'll get Retail Sales for July and the rest of the week is rather empty for AU data. Chinese data will keep things ticking along with PMI data due out on Wednesday and Thursday.

USD

After having briefly regained the 70 handle in the early hours of a very volatile Saturday morning, the AUDUSD opens considerably lower today at 0.6863. US data was slightly weaker than expected with Core PCE for July printing at 0.1% MoM and 4.6% YoY, both lower than expectations by 0.1%. There were other less important releases that showed mixed results, however the data was overlooked in favour of Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium. Powell's speech was more bullish than expected, disappointing market positioning last week which was anticipating mention of rate cuts in 2024. Instead it was full steam ahead from JPowell, who reiterated the Fed’s determination to continue to “raise interest rates as long as it takes to beat inflation”. He also warned against premature loosening of policy and indicated that the size of the September rate hike would be determined by the “totality” of data. Few hawk Mester was also later on the wires adding to the hawkish tone by stressing that the Fed was “all in” to deal with inflation and that it would not be a short campaign with a lot more convincing evidence that inflation was easing. As one would expect, the USD came on like a freight train and last week's gains were quickly gone. As a result, another large, 75bps interest rate hike is still a real possibility at the Fed’s next policy meeting in September. Wall street was not enjoying renewed anticipation of further rate hikes, and closed Friday’s session with the DOW losing 3% on the day with the S&P down by 3.4% and the Nasdaq was almost 4% lower at the closing bell. Tonight FOMC Member Brainard will follow up his Fed colleagues' speeches at the weekend, and data will kick off tomorrow night with CB Consumer Confidence and JOLTS Job Openings.

EUR

Following the trend, the Aussie dollar has weakened considerably against the Euro opening this morning at 0.6903, down almost 1 cent from Friday's highs. No market moving data out of the Eurozone over the weekend The only data with some relevance was Friday’s M3 Money Supply y/y being on expectation and Private Loans y/y coming in just under expectation at 4.5% being priced in at 4.6%. EURUSD briefly spiked to 1.00745 in response to rumors of ECB discussing a 75bp hike at the next meeting due to a deterioration in the outlook for inflation. Though this was short-lived as Powell’s speech reversed any Euro gains forcing EURUSD back below parity. European markets also shifting lower across the board with the CAC losing 1.7% and the DAX also shedding 2.3% at close. No data coming out of the Eurozone today. Looking forward, tomorrow we have the German CPI m/m which has been priced in at 0.2% having previously been at 0.9%.

GBP

After hitting 5 year highs of 0.5909 on Friday, the Aussie dollar also opened down against GBP opening at 0.5870 this morning. The drop can also be attributed to talks at the Jackson Hole Symposium over the weekend which took a toll on commodity currencies. Looking at equities, the FTSE followed the trend of most equity markets at -0.7% on Fridays close. Britain enjoys a bank holiday, meaning no data coming out today. Looking forward and no major data coming out this week from the UK, but some minor data coming out tomorrow with the M4 Money Supply m/m, Mortgage Approvals, and Net Lending to Individuals m/m.

NZD

The AUDNZD bucks the trend here, opening higher this morning at 1.1225, being the only major currency pair that the Aussie dollar opened higher against. Both AUD and NZD were adversely affect by JPowell's speech which stoked fears of commodity price headwinds in an environment where global demand is decreasing as a by-product of higher interest rates. No data coming out for the Kiwis until Wednesday with the Building Consents m/m and ANZ Business Confidence with previous numbers being -2.3% and -56.7 respectively.