AUD Down After Dovish Interpretation of Yesterday's RBA Statement

AUD

Yesterday the RBA raised interest rate by a further 0.5% which represents their fourth consecutive rate hike, the first time since 1990. Although the rate hike was in-line with market expectations, the market interpreted Lowe’s comments that rates are ‘not on a set path’ as somewhat dovish, resulting in the slight weakening of the AUD. Markets have pared back expectations of future RBA interest rate hikes, the futures markets now expecting a rate of just over 3% by year's end, implying another 125bps worth of hikes in the final four meetings of the year. US Speaker of the House Pelosi’s historic trip to Taiwan unsettled equity markets in the region which finished largely in the red, with the Hang Seng the worst performer down 2.4%. The ASX outperformed closing Tuesday’s session +0.1%. Commodities saw a slight drop over the last 24 hours with CMX Copper down -1.7%, Gold down -0.8%, and SGX Iron ore -0.9%. Looking ahead, Australian Retail Sales m/m are released at 11:30am, current forecasts are at 0.2%, in line with the previous result. We also have the Caixin Services PMI out of China shortly after, which will be a good indicator of conditions in the services sector of the Chinese economy.

USD

A volatile 24 hours sees the AUDUSD open at 0.6921, more than a 1 cent below yesterday’s opening. With the AUD weakness following the RBA announcement, the US wasted no time in pushing AUD sub 0.70. Adding to US safe haven appeal, US House Speaker Pelosi arrived in Taiwan and declared her visit was in support of “America’s unwavering commitment to supporting Taiwan’s vibrant democracy”. The Chinese Foreign Ministry condemned her visit saying it would damage peace and stability in the Taiwan Strait and violated Chinese sovereignty and territorial integrity. They said that China would take “necessary measures” to defend their sovereignty. The souring risk mood saw Wall St remaining in negative territory into the close with the Dow Jones closing -1.2%, the S&P 500 -.7% and the NASDAQ -.2%. JOLTs Job openings were below market expectation at 10.70M instead of 10.99M. Data to look out for in the upcoming 24 hours is the Final services and ISM services PMI.

EUR

The AUDEUR opens slightly lower than yesterday at 0.6804, after yesterday's RBA announcement the Aussie saw a low of 0.6753 before recovering to current levels. Risk was off overnight with Pelosi's trip to Taiwan (see above) and as expected European equities finished in the red. It was a quiet night of Euro data last night, however tonight will see Services PMI figures for the Spanish, Italian, French, and German economies. But, with inflation on everyone’s minds, the Eurozone PPI will be paid the closest attention. Producers Price Index (PPI) in Europe as at astronomical highs and because it is related to how businesses are experience price increases, it is seen as a strong leading indicator of what will eventually flow through to consumers. In other words, if PPI is high, then high CPI should follow. 

GBP

The AUDGBP opens well down this morning at 0.5681, having lost over 1% in the wake of the RBA decision yesterday. The last week has seen a consistently strengthening Pound, the AUD touched 2 week lows early this morning. Yesterday saw the FTSE100 down -0.3%. Markets are bracing for the BOE monetary policy announcement on Thursday with a 50bps hike to 1.75% currently priced in. This would be a more bullish approach for the Brits, as the last 4 meetings have seen 25bps hikes. This more aggressive expectation likely comes off the June’s inflation figures that saw the UK’s inflation at 40 year high’s of 9.4%.

NZD

THE AUDNZD also opened lower at 1.1065, slightly down from yesterday's opening, despite the AUD recovering almost all post-RBA losses. Fonterra released the results of their latest dairy auction with the GDT Price Index falling by 5.0% while Whole Milk Powder prices fell by 6.1%. No obvious reaction from the Kiwi. NZ Unemployment Rate q/q was released this morning, seeing it come in at 3.3%, worse than an expected 3.1%. This was the first increase in the Unemployment Rate since November 2020 which will be eye-opening for the RBNZ. The labour cost index came in above expectation at 1.3%, instead of the 1.1% expectation which would please the RBNZ. Looking forward in the way of data, we have the m/m ANZ Commodity Prices being released today, which has seen losses over the last 3 months.