US to Raise Interest Rates Again Tonight
AUD
The Australian Dollar was under pressure yesterday, as disappointing local Retail Sales data has given the RBA some food for thought. However, it managed to trim most of yesterday’s losses in trade early this morning. Asian equities finished the session in the red with the CSI300 the worst performer down 1.1%. The ASX closed Tuesday’s session down 0.1%, led by losses in IT and Real Estate stocks. In commodities, a somewhat mixed result with Gold and Silver flat, Copper and Iron Ore advanced 0.5% and 0.6% respectively. Yesterday in data, Retail Sales m/m was released, missing expectations by a landslide – increasing downward pressure on the Aussie. Key statistics: The December 2022 seasonally adjusted estimate fell 3.9% month-on-month; however, it rose 7.5% compared with December 2021. Food retailing rose 0.3% in December, in seasonally adjusted terms. Household goods retailing fell 7.8% in December, in seasonally adjusted terms. Some sales were brought forward into November and Black Friday, and the November gain was revised up to 1.7% from 1.4%. Looking abroad, and China's January PMI readings strengthened optimism around its re-opening, with manufacturing and non-manufacturing (includes construction and services) both moving above the 50 boom/bust level for the first time in four months. Today we have AUD Commodity Prices y/y, and Caixin Manufacturing PMIs for the Renminbi.
USD
AUDUSD began a steep decline following weak Aussie data as investors continue to trim positions ahead of the start of the FOMC meeting tomorrow, however it managed to recover from a weekly low of 0.6983, holding around yesterday’s open of 0.7057. Wall St rebounded overnight with the NASDAQ closing up 1.3%, the S&P 500 gaining 1%, and the Dow Jones advanced 0.6% late in the session. US 2- and 10-year yields were relatively flat ahead of tonight’s FOMC rate decision while crude oil gained 0.9% to $78.50 a barrel. The main event of the week, the Fed’s FOMC meeting, has important implications for the rate hike cycle. Macquarie Strategy expect a 25-bps hike, which will take the federal funds rate to 4.50% - 4.75%, a range they believe will prove to be the cycle peak. Fed Chair Powell is however likely to guide towards further hikes in his press conference citing the continued acceleration in core services inflation that was apparent in the December data. Market reaction may be driven by the remarks Chair Powell makes surrounding the end-cycle rate. Potential for volatility in the early hours of tomorrow morning.
EUR
AUDEUR trades slightly lower this morning, reaching one-week-lows of 0.6451 before showing signs of resilience and beginning its advance back to its current level of 0.6486. Interestingly in equities, both the DAX and CAC were flat. To the data, and France announced that its economy grew by 0.1% in Q4, defying expectations for a flat quarter and following Spain which also surprised to the upside last week. On the other hand, Italy joined Germany in reporting a small contraction. In aggregate the eurozone economy grew by 0.1% in Q4 for a 1.9% year-over-year pace. Today, ahead of Thursday's ECB meeting, the preliminary estimate of January's CPI for the Eurozone will be published. The aggregate CPI is expected to rise 0.1% this month after a 0.4% decline in December. The year-over-year rate is seen easing to 8.9% from 9.2%, while the core is expected to slip 5.1% from 5.2%.
GBP
AUDGBP trades a bit higher this morning, having plummeted to over one-week-lows of 0.5670, before regaining momentum and advancing to 0.5721 this morning. In yesterday’s session, the FTSE lost out modestly, down -0.2%. No data of significance yesterday, with Nationwide HPI m/m and Final Manufacturing PMIs m/m being released today, both expected to be contractionary.
NZD
AUDNZD trades higher, having maintained ranges of 1.0876 and 1.0925 before rallying this morning as a consequence of disappointing Kiwi data, trading at 1.0953 this morning. The data related to the employment situation in across the ditch was as follows; In the December 2022 quarter, compared with the September 2022 quarter, the unemployment rate was 3.4 percent, compared with 3.3 percent. Underutilisation rate was 9.4 percent, up from 9.0 percent. Employment rate remained unchanged at 69.3 percent In the year to the December 2022 quarter, all salary and wage rates (including overtime) increased 4.1 percent. Average weekly earnings (including overtime) for full-time equivalent employees (FTEs) increased to $1,497. Average ordinary time hourly earnings rose to $38.19. This data not only demonstrates the Unemployment Rate increasing, but also indicates persisting wages inflation – one of the biggest pain points for New Zealand in the current economic cycle. This will play into the RBNZ monetary policy decision on 22nd February.