Aussie Pares RBA Losses as BoE Meetings Loom
AUD
The Aussie dollar has strengthened slightly against all major currencies, beginning to recover from Tuesday’s weakness following the RBA Rate Statement. Asian equities were mixed on the close, with the Nikkei +0.5% and CSI300 -1.0%. The ASX fell by -0.3% at the close of trading on Wednesday, with consumer discretionary stocks mainly responsible. The Australian dollar draws support from strong domestic data and the upbeat Chinese service-sector activity report. Australian retail sales volumes recorded the third consecutive quarterly increase and rose +1.4% during the April-June period to reach a new record. Separately, China's Caixin Services PMI improved further and shot to a 15-month high of 55.5 in July. Commodities on the other hand were less supportive, mixed into the morning with Iron Ore losing -0.7% whilst Gold gained +0.3%. Looking forward the AUD trade balance will be announced at 11:30am with the forecast of 14.00B, though it’s unlikely to attract an audience. More importantly will be follow up commentary from this weeks RBA’s meeting, due for release on Friday.
USD
The AUD/USD has begun to recover from Tuesdays steep drop opening up at 0.6948 compared to yesterday’s 0.6921 open. Wall St bounced back overnight from recent losses, with equity markets taking a penchant for risk to close out the session NASDAQ gaining +2.6%, the S&P 500 +1.4% and the Dow Jones +1.3%. In US data, Final Orders for Durable Goods in the US grew by 2% in June, exceeding estimates of a 1.9%, while Factory Orders for June increased by 2% up from a prior 1.6% (1.2% estimate). Of more significance, ISM Services for July increased to 56.7 from 55.3, exceeding expectations of 53.5 and rising by the most in Five-months as a result of easing price pressures giving some optimism to markets. In other news, US-Chinese tensions also escalate as China has recently responded to Nancey Pelosi’s visit to Taiwan by deploying warships in Taiwanese waters, keeping risk-on advocates on their toes. Tonight, will see Unemployment claims and some Fed talk, Unemployment will be of keen eye as an indicator of economic health as the rate hike cycle looks to continue.
EUR
The Aussie Dollar strengthened against the Euro yesterday, opening at 0.6835 compared to the last open of 0.6804. European equities were able to tick higher into the end of the day, the CAC and the DAX gaining roughly +1% by close. The Euro did demonstrate some resolve thanks to the European services PMI, touching 1.1019. Other EuroZone data had Italian Service PMIs weaker at 48.4 (forecast 50.1), whereas French and German readings were stronger than the preliminary print, at 53.2 (52.1 Prelim) and 49.7 (49.2 Prelim) respectively. The data was largely ignored, with markets more focused on rate hikes and China/US relations. Today will see release Germany release their Factory Orders month on month for June – not a major attraction.
GBP
The AUD trading higher this morning against the Pound as currency markets await the BoE meetings tonight, the pair trading at 0.5712 currently. In UK data yesterday, Final Services PMI came in at 52.6, worse than the preliminary reading of 53.3. The key piece of data for currency markets this week, is the BOE’s Monetary Policy report, and the Official Bank Rate, which will be followed by a speech from Gov Bailey. The BoE is expected to deliver another rate hike at its monetary policy meeting on Thursday. However, the market is split as to whether the committee will opt for 25bps or 50bps after Governor Bailey recently noted that a larger increase was “on the table”, demonstrating the Bank’s commitment to returning inflation to its 2% target. Such a move would take borrowing costs to 1.75% as the central bank battles soaring inflation and would be the first half-point hike since it was made independent from the British government in 1997.
NZD
Much quieter on the AUD/NZD front as data remains far-and-few between, as the Aussie trades only higher this morning, sitting at 1.1082 right now. Yesterdays Unemployment data has kept the Kiwi reeling, as the jobless rate climbed to 3.3% from 3.2% in the first quarter, which was the lowest level since records began in 1986. This could suggest that the RBNZ may need to keep raising interest rates aggressively to tame inflation. The echo of silence continues tomorrow, no more data from the Kiwis this week.