AUD Starts the Week Strongly

AUD

The Aussie Dollar opens largely up against majors with the ASX adding 0.66% gains, led by the energy, materials & financial sectors. Asian equities were mixed to close the week down -1.25% while the Hang Seng posted gains of +0.9%. A quieter start to the week ahead with Aussie employment data to be released Thursday morning. Inflation remains the hot topic off the back of last week’s CPI data, with the figure slightly exceeding expectations at 7.3% y/y and reflecting an increase in consumer prices since October. ABS head of prices statistics, Michelle Marquardt, said the latest monthly data indicated there were still ongoing inflationary pressures in the economy, driven by high labour and materials costs. While there’s signs inflationary pressures are easing within the housing market, the RBA will be taking the CPI data into account when deciding the size & plausibility of another interest rate hike on Feb 7. To China, tomorrow’s GDP q/y is expected at 1.6%, reflecting a fall from the previous 3.9% as abandonment of the zero-Covid policy hit the already-fragile Chinese economy. Perhaps, the most interesting development will be whether the benchmark one-year loan prime rate will be reduced from 2.75%. A reduction, even a small one, could attract more foreign buying of Chinese equities, which have already begun the year with strong demand.

USD

AUDUSD saw slight gains over the weekend, peaking at 0.6994 and currently sitting at 0.6975. Another solid session on Wall St saw the NASDAQ post its 6th successive day of gains, closing +0.7%, while the S&P 500 and Dow Jones gained +0.4% & +0.3% respectively. The University of Michigan Sentiment Survey for January rose to 64.6 from 59.7, exceeding expectations of 60.7 with significant beats for current conditions and expectations sub-indices. Notably, 1-year inflation expectations printed at 4%, down from 4.4%, bolstering last week’s FED commentary suggesting the size of interest rate hikes may fall to 25bps. A quieter start to the week with the US on holiday commemorating Martin Luther King Day. In Thursday’s early hours we expect PPI & Retail Sales data, both of which set to fall as 2022’s rate hikes continue to take effect.

EUR

AUDEUR opens up at 0.6437 with the DAX & CAC posting gains of +0.2% & +0.7% respectively. Eurozone Industrial Production rose 1% in November, while the German economy grew faster than anticipated in 2022 at +1.9% vs consensus estimated of +1.8%. Little reaction to the data & a relatively quiet week ahead. On Tuesday, German ZEW Economic Sentiment is expected to improve, up from -23.3 at -15.0. Additionally, the World Economic Forum’s annual meeting kicks off in Davos, Switzerland this week. Typically, the global elite of business leaders, politicians and economists make bold predictions and try to set the agenda for the year ahead. Among other things, the Forum are expected to address European recessionary indicators & digital currencies.

GBP

AUDGBP opens flat at 0.5705 as the UK’s GDP grew by 0.1% in November, exceeding expectations of a 0.2% contraction. The Office for National Statistics indicated the majority of growth was driven by food & beverage services having been bolstered by the FIFA World Cup. As such, the majority of economists expect the impending UK recession may simply be delayed, rather than averted. Notably, the Bank of England has predicted that the UK economy will experience a minimum four-quarter recession, its longest on record. On a more positive note, the UK labour market remains strong despite steady contractions in the economy since August 2022. Today, BOE Governor Bailey is due to testify on the December Financial Stability Report before the Treasury Select Committee in London.

NZD

NZD buyers rejoice as the AUDNZD has rallied to 2-month highs, sitting at 1.0925 this morning. The gains largely attributed to improved sentiment, reflected by AUD strength & widespread gains across global equities. No major data this week, while tomorrow’s quarterly Business Confidence figure (from the NZ Institute of Economic Research) is expected to remain unchanged from the previous -42.