BoE Intervention Rescues USD Buyers
AUD
Volatility in markets continues to shake up the Aussie Dollar, opening mixed against its major trading pairs. AUD was helped along last night with Gold up a massive +1.9%, Iron ore up +1.2%, Silver up +2.9%, and Copper gaining +3%. Australian retail sales boasted another strong month in August as shoppers spent on household goods and eating out, as consumers were proving resilient to red-hot inflation and rising interest rates. Retail Sales came in above expectation, at a 0.6% increase against the 0.5% expectations. The ASX closed -0.5%, and Shanghai Comp -1.6%, Nikkei -1.5%, the Hang Seng also reported the worst monthly performance for 2022 in the month of September. Fairly quiet for the Aussie data this week with private sector credit m/m being released on Friday – markets currently expecting a 0.7% increase. Some Chinese data is also out on Friday which may influence the AUD, Chinese manufacturing PMI & non-manufacturing PMI.
USD
The Aussie Dollar finally bouncing back against the Greenback taking some strong gains overnight, reclaiming the 0.65 handle, trading at 0.6509 currently. The sharp retracement only occurred after refreshing new lows in the early evening, then rebounding over 150bps upward off the 0.6363 support level. The uptick likely attributed to the change in attitude from the BoE (see more in GBP section). In the spirit of volatility US equities saw large gains with the Dow Jones up +1.9%, S&P 500 up +2%, and NASDAQ up +2.1% after almost an entire week in the red. FOMC member James Bullard spoke at an event in London with rhetoric about the need for the Fed to continue an aggressive pathway to inflation control. Month on month Pending Home Sales also missed by more than double hitting -2% against the expected -0.9%. More room for volatility towards the end of the today with Final GDP q/q for the US being released at 10:30pm AEST tonight, currently tipped at -0.6%, which would be the third quarter in a row of negative growth for the US. Weekly change in unemployment claims also coming in currently tipped at 215k.
EUR
AUD/EUR trades largely sideways although it did briefly reach 2-month lows (0.6664) in the late evening, before ascending higher to trade at 0.6697. Plenty of ECB talk currently, with even more penciled in later as well. German GfK Consumer Climate was reported worse than expectation at -42.5, missing the expected -38.9. ECB President Lagarde spoke at the Frankfurt Forum on US-European GeoEconomics, saying the ECB must ensure inflation expectations stay anchored at 2%, confirming they will continue to hike interest rates in the next several meetings. ECB’s Holzmann said 100bps is currently too much, and 75bps is a good figure for the October hike. He added that the cash rate is still some way from the neutral rate, and QT must be part of normalization. Later today German Prelim CPI m/m will be released, currently tipped at 1.5%, Spanish Flash CPI y/y will be released expectation now sitting at 10.1%. The biggest upcoming news this week will be the CPI flash estimate y/y tipped at a huge 9.7% estimate. There are also series of ECB speakers talking, including Knot, Kazaks, and Villeroy to name a few.
GBP
The AUD/GBP is trading flat at opening this morning at 0.5991, but seeing a full cent range worth of movement over the past 24 hours. The BoE entered the bond market on Wednesday to calm the markets, committing to buy GBP 65 Billion of long-dated UK Gov Bonds (Gilts) following the new Prime Minister Liz Truss’s “mini-budget” release, plagued with substantial tax cuts, aimed to stimulate the economy. At the same time, the BoE postponed the beginning of the Quantitative Tightening program for the end of October. The result of the BoE’s intervention helped to drop yields in the 30-year bond rate falling 100 bp or 1%, its most significant drop dating back to 1992. Moody’s hit the wires saying the large UK unfunded tax cuts are a credit negative, adding that it expects UK 2023 GDP growth forecast to 0.3% from 0.9%. It also sees UK government debt rising to 104% of GDP in 2026. British data to look out for later this week include Final GDP q/q (tipped at -0.1%), Current Account (expectations at -43.2Bio), and Nationwide HPI m/m (expecting up 0.2%).
NZD
After seeing 9-year highs yesterday, the AUD/NZD has dropped a full cent from its peak, currently sitting at 1.1384. Markets are still awaiting any Kiwi data to offer excitement, with ANZ Business Confidence set for release later this morning. RBNZ Governor Orr in discussion in Lithuania should also garner some attraction later tonight as well.