US Fed Reserve to Raise by 75bps Tonight
AUD
The Aussie dollar is mixed against its major counterparts, as currency markets remain largely dormant ahead of the highly anticipated Federal Reserve Interest Rate decision in the early hours of tomorrow morning. Asian equities bounced back from recent lows and were higher into the close with the Hang Seng +1.2% and Nikkei +0.4%. The ASX was the star performer finishing the session +1.3%, with materials leading the gains up 2.7%. Commodities were mainly lower with Gold only gaining +0.1% whereas Iron Ore and Copper were -0.7% and -0.3% respectively. Adding to the pains of the downbeat Aussie were statements from the Reserve Bank of Australia’s (RBA) latest Monetary Policy Meeting Minutes. Minutes showed that policymakers are well prepared for further rate hikes to tame inflation, however, the comments such as “Interest rates have increased quite quickly and were getting closer to normal settings,” perhaps held the AUD back. No real major data today with only the Melbourne Institutes Leading Index and RBA Deputy Bullock speaking at midday. Australia does have a Bank Holiday tomorrow in a National Day of Mourning for the death of Queen Elizabeth II.
USD
The AUDUSD continuing the slide as it drifts lower to 0.6691 this morning, as markets anticipate a bumper rate hike from the US overnight. All 3 major indices on Wall St plummeted as the FOMC looms, the Dow Jones, S&P, and Nasdaq all losing -1.0%. The only piece of data out of the US was Housing Starts for August which dramatically rose +12.2% to 1.575M, beating estimates of a +0.3% increase to 1.450M. Building Permits however fell by -10.0% to 1.517M to come in short of expectations of a -4.8% decline to 1.604M. No real reaction to the data as markets really await the headline macro news for the week in the early hours of Thursday morning. Markets were favouring a 75bp hike ahead of the August CPI report, but the much higher-than-expected inflation print has seen markets give a chance that the Fed will go over and above that by opting for 100bp. A 75bp hike is the more favoured call, however inflation is proving to be stickier than expected and markets will look for further guidance in subsequent meetings in November and December. Keep an eye out tomorrow morning.
EUR
The AUDEUR remains unchanged this morning and still managing to cling on to 0.67 figure, currently trading at 0.6707 right now. European Equity markets were taking heave losses with the DAX -1.0% and the CAC down -1.4%. In German headline data, German PPI for August jumped to a record high, surging by 45.8% y/y, easily beating expectations of 36.8%. Rising energy costs were the main contributor, with electricity costing 174.9% more than a year ago and natural gas prices up 209.4%. In response, Germany’s 2-year bond yield touched fresh 11-year highs at 1.65%. There was plenty of ECB chatter with Speaker Muller hitting the wires saying that interest rates are still low in a historical context, and are far from the level that would slow the economy. He added that the ECB must fight inflation now or hike more steeply later. President Lagarde also spoke and mentioned front-loading rate rises are an effort to contain wage-price spiralling out of control.
GBP
The AUDGBP also seeing no real change to trade at 0.5880 currently, as the UK will join the party when the BoE has there interest rate decision on Thursday night. Markets narrowly favour a 50bp hike on Thursday, taking the Bank Rate to 2.25%, although 75bp is clearly on the table and it would be expected that at least a couple of policymakers could vote for it. The announcement of an energy price cap from the government will drastically lower near-term CPI, though it could be argued that the government’s support package could increase medium-term inflation given it reduces the risk of recession. No major other data in waiting for Thursday evening.
NZD
The AUDNZD obliterating recent highs and refreshed to be the highest rate since August 2015, trading at 1.1344. There is no macroeconomic data that triggered the Kiwi weakness, although our cross-the-ditch cousins have felt the pain of lockdowns in China and forward thinking of an aggressive rate hike in the US. Tomorrow will see the release of Westpac Consumer Sentiment and Trade Balance but are not likely to grab attention.