RBNZ to Raise Interest Rates Again at Midday
AUD
AUD performed poorly overnight as equities and commodities felt the pinch of global inflation fears. Asian equities closed in the red with the Hang Seng the worst performer down 1.5%. The ASX finished the session down 0.2% after the RBA’s admission in yesterday's meeting minutes that it debated the need for a 50bp rate increase at this month's policy meeting. Commodities closed in the red with Gold -0.2%, Silver -0.6% and Iron Ore -0.8%. Yesterday's local Manufacturing PMI data came out at 50.1, a 0.1 increase from its previous release of 50. Services PMI’s priced at 49.2 better than its previous of 48.6. For data today, Macquarie’s Strategy expect the wages release to show the wage price index (excl. bonuses) to have increased 1.0% q/q and ~3.5% y/y in Q4. They have also stated they will be paying close attention to the broader “including bonuses” measures which, amid very tight labour market conditions, have likely strengthened further. Construction work done is expected to have risen a solid 1.5% q/q in Q4, in part due to easing weather and supply-related disruptions. There is also still a large pipeline of dwelling and engineering construction work yet to be done. Potential volatility in today's session when the RBNZ make their monetary policy announcement at midday (see below).
USD
AUDUSD took a hit last night amid the aftermath of stronger than expected US PMI data overnight, toppling down to a lows of 0.6848 before opening this morning only marginally higher. February Manufacturing PMI printed at 47.8, up from 46.9 and better than expectations of 47.4 with Services PMI up to 50.5 from 46.8 and beating expectations of 47.3. The results saw the Composite PMI rise to 50.2 from 46.8, better than expectations of 47.5. SUch an improvement in PMIs is stoking inflationary fears further and the potential for higher interest rates from the Fed which in turn lends strength to the USD. As one would expect with the prospect of a higher interest rate environment, equities fell away with the NASDAQ was trading -2.2%, while the S&P 500 and the Dow Jones were both -1.9%. Also released overnight January Existing Home Sales fell by 0.7% to 4.00m to come in worse than forecasts of a 2.0% increase to 4.10m. Looking ahead, FOMC minutes from the February meeting will be published early tomorrow morning. Investors will likely be focused on discussion around what specific developments would warrant any upward revision to members’ terminal rate expectations. Further insight on when rate cuts may commence and what conditions would be needed for this to occur will also be in focus.
EUR
AUDEUR continues its trend downwards losing -0.4% opening up at 0.6438 this morning. European equities closed in negative territory with the Eurostoxx 50 -0.4%. In France, February Manufacturing PMI printed at 47.9 down from a forecast 51 while the Services PMI rose to 52.8, above expectations of 49.8. A similar story in Germany with the Services PMI rising to 51.3, above a forecasted 51. However, Manufacturing PMI printed at 46.5, missing estimates of 48.1. Eurozone Manufacturing PMI printed at 48.5, missing expectations of 49.3. Services PMI rose to 53, above a forecasted 51. The German ZEW Survey for February rose from 16.9 to 28.1 to easily beat forecasts of 23.0 with considerable improvements in the Current situation and Expectations sub-indices. Tonight we have Germany's final m/m CPI data expected flat form previous at 1% as well IFO Business Climate data expected at 91.1.
GBP
AUDGBP landed flat on its face, losing over 1 full cent from top to bottom, opening this morning at 1 month lows of 0.5646. The reason for the GBP strength is attributable to February Manufacturing PMI which printed at 49.2 and above estimates of 47.5, while Services also rose to 53.3 and coming in higher than an expected 49.2. This strong data spurred the GBP to gains of almost 2% in a short span of 24 hours and pushed the FTSE100 down to losses of -0.3% on the day. There is no new coming data release until Thursday night with several MPC members due to speak.
NZD
AUDNZD opening only slightly down at 1.1026 this morning in anticipation of a big day ahead. First up this morning we had Trade Balance data printing significantly off at -1954M forecasted at -784M. In the main global event for the day, the RBNZ will meet in New Zealand today, with markets expecting an OCR hike of 50bps to 4.75%. Inflation remained very high and broadly based in New Zealand at the end of 2022. Wages growth also remained very strong amid exceptionally tight labour market conditions. While 2-year-ahead inflation expectations didn’t rise further in the RBNZ’s Q1 survey of expectations, it remained elevated and points to ongoing hawkishness from the MPC. Changes to the OCR track are always watched closely as a proxy for forward guidance. The recent adverse weather in New Zealand is likely to get a mention but doubtful it will derail the RBNZ from the path of likely further policy tightening.