AUD Trades Flat in Lethargic Conditions
AUD
The AUD trades largely consistent with yesterday’s levels overall, with the exception of the AUDNZD which is higher. Asian equities were lower to open the week, with the Hang Seng falling 1% and Nikkei down 1.1%. The ASX closed at the lowest level in two months, down 0.3% with utilities and tech shares underperforming. Commodities, in keeping with the recent positive upward trend, continue to show gains. Gold increased 0.3%, Silver is up 0.9%, Copper gained 0.3%, and Iron Ore was the star performer, posting at 2% in the green. As mentioned, with a lack of Australian economic data released yesterday, all eyes will be on the RBA Monetary Policy Meeting Minutes being released at 11:30am this morning. In their most recent Monetary Policy decision, the RBA decided to raise rates by 50bps to bring the Cash Rate to 2.35%. Today’s Meeting Minutes may give an indication as to if hikes will continue at this pace, or if a more aggressive strategy to curb inflation is on the cards. Despite an upbeat batch of economic data from China last week, including retail sales and industrial production beating estimates, economists are standing by their pessimism. UBS downgraded its full-year growth forecasts from 3% to 2.7% for 2022 and from 5.4% to 4.6% for 2023. “While some of the current policy support will bear more fruit in Q4, the Covid situation will likely remain challenging into the winter and early 2023, and export growth is set to slow,” UBS chief China economist Tao Wang said in the note. Wang adds that the revised 2023 forecast is still based on a scenario where the property market stabilizes soon and Covid restrictions ease from March onward. Looking ahead, no significant data of note will be released this week. However, RBA Deputy Gov Bullock’s speech will be of interest, occurring tomorrow at midday.
USD
AUDUSD trades sideways this morning, having dipped back into 0.66 territory overnight, sinking to lows of 0.6669 before regaining the 0.67 handle to trade at 0.6733 this morning. Wall St managed a slight rebound overnight with the Dow gaining 0.6%, the S&P up 0.7%, and the NASDAQ increased 0.8%. Last night, NAHB Housing Market Index was released out of the US, missing projections of 47 and posting at 46. In another sign that the slowdown in the housing market continues, builder sentiment fell for the ninth straight month in September as the combination of elevated interest rates, persistent building material supply chain disruptions and high home prices continue to take a toll on affordability. Builder confidence in the market for newly built single-family homes fell three points in September, the lowest level since May 2014 with the exception of the spring of 2020. Today doesn’t contain any data to write home about, with Building Permits and Housing Starts both coming out this evening. Looking ahead, all eyes will be on the FOMC Rate Statement, which will be released very early on Thursday morning.
EUR
AUDEUR trades flat this morning, dropping down to 0.6682 before recovering slightly to trade at 0.6708 at time of writing. In equities out of Europe, the DAX has gained 0.5%, and the CAC has lost out -0.3%. In data, the German Buba Monthly Report was released yesterday evening, indicating that the “German economy will shrink markedly in Autumn and Winter.” The risk of a euro-area recession has reached its highest level since July 2020 as concerns grow that a winter energy squeeze will cause a slump in economic activity. Economists polled by Bloomberg now put the probability of two straight quarters of contraction at 80% in the next 12 months, up from 60% in a previous survey. Germany, the bloc’s largest economy and among the most exposed to cutbacks in gas supplies, is likely to shrink from as early as this quarter. Households and companies in Europe are bracing for the possibility of energy rationing after Russia throttled gas shipments to the region and are already contending with record-high inflation rates and other supply bottlenecks. Business surveys signal activity has been contracting since July, with few signs of improvement in the near term. Inflation is now expected to peak at 9.6% in the final three months of the year, almost five times the European Central Bank’s goal. Respondents don’t see it approaching the 2% target until 2024. While ECB officials predicted the euro-area economy will only stagnate, not contract, when they updated policy this month, they have increasingly sounded the alarm over the region’s growth and inflation outlook. President Christine Lagarde and her colleagues have justified larger hikes as a sign of their determination to tame price growth, though economists consider their time is running out to take such actions. Respondents now see the ECB pausing its rate-hiking cycle sooner but lifting interest rates higher to a peak of 2% for the deposit rate by February. Over half expect a 75 basis-point increase at the ECB’s next policy meeting in October. In data today, German PPI m/m and Current Account will be released. Looking ahead, ECB President Lagarde will speak this evening, which may give investors an indication as to the ECB’s outlook moving forward.
GBP
AUDGBP trades flush this morning, having stooped to 0.5862, before coming back up to match yesterdays open, trading at 0.5882. In equities, the FTSE lost out overnight, dipping -0.6%. No data released from the UK yesterday as there was a bank holiday, and no data to be released today either. Tomorrow will see two minor data releases, Public Sector Net Borrowing and CBI Industrial Order expectations. However, Thursday evening will be the main event. The Bank of England will consider whether to push through the biggest interest-rate increase in 33 years to respond to surging inflation and weakening confidence in British assets. With prices rising five times faster than the UK central bank’s 2% target and the pound falling almost daily, policy makers led by Governor Andrew Bailey are under pressure to step up the pace of monetary tightening. Prime Minister Liz Truss’s move to protect households from rising energy bills will add a jolt of stimulus to the economy, softening the downturn that analysts and the BOE had been expecting. “A 75-bp increase remains possible, but we think the government’s emergency energy support package reduces the need to up the hiking pace by ensuring a lower inflation peak and a faster decline next year.” - Dan Hanson, Bloomberg Economics.
NZD
AUDNZD has forged onward and catapulted to over 5-year-highs overnight, having reached 1.1295 before tapering off ever so slightly to trade at 1.1287 at time of writing. Last night, RBNZ Governor Adrian Orr spoke, stating “Our most recent Monetary Policy Remit defines the Monetary Policy Committee’s objectives: to focus on keeping inflation between 1% and 3% over the medium term and supporting maximum sustainable employment. While it doesn’t currently have a climate component, the macroeconomic consequences of climate change have impacts on monetary policy.” Looking ahead in data, tomorrow both GDT Price Index and Credit Card Spending y/y will be released across the ditch.