AUD Unsupported Into the Weekend
AUD
The Aussie dollar opens slightly down against majors with broad, poor performance across commodities, while ASX finished the session down -0.4%, dragged by losses in the materials sector. Notably, yesterday saw Macquarie Bank increased its projected interest rate path to three consecutive 25bps cash rate increases for March, April & May, taking the expected RBA cash rate peak to 4.1%. The reasoning for the change in outlook being that upcoming economic data flow is not expected to dissuade the RBA Board from hiking each month in order to stamp out chances of second round inflation, which threatens to undermine the effects of the Central Bank’s recent interest rate hiking campaign. No notable near-term data on the cards, while next Wednesday we’ll see Aussie CPI y/y & GDP q/q.
USD
AUDUSD opens down at 0.6809, having reached new lows of 0.6782 overnight, while US equities traded firmly off the back of surprisingly hawkish undertones to the most recent FOMC Meeting Minutes. The NASDAQ ended the session up +0.7%, while the S&P 500 & Down Jones closed up 0.5% & +0.2% respectively. Despite Fed Chair Powell sounding rather relaxed at the Feb 1 press conference, having declared the ‘disinflation process has started’, the meeting minutes were rather hawkish. Voting Members agreed that further rate hikes are needed & that inflation remained unacceptably high. There were no hints at a pause & very little to alter market pricing of a further 3 x 25p hikes. This should provide a backdrop to support the USD in the near-term, while the main focus at next month’s meeting will be whether the Fed Dot Plots will retain a median view of a 100p easing cycle in 2024. To the day ahead, US PCE consumption & inflation for Jan (the Fed’s preferred inflation gauge) are due this evening & expected to be strong, given retail sales data suggesting goods spending snapped back in January. Higher energy & gasoline prices, alongside increased spending dining out, are also expected to provide a lift & won’t do anything to help recent discussion surrounding reducing the rate of interest rate hikes.
EUR
AUDEUR opens down at 0.6424 while the DAX & CAC trade up +0.5% & +0.2% respectively after Eurozone core inflation accelerated to 5.3%, ahead of expectations of 5.2%. Notably, the headline figure was down to 8.6% from December’s 9.2% reading, although still largely ahead of the 5.6% reported 12 months ago & reflecting the past year’s inflationary persistence. Tonight, we’ll see German Final GDP q/q (expected at -0.2%) & and a forecasted improvement in German GfK Consumer Climate sentiment. Typically, these don’t move markets.
GBP
AUDGBP opens slightly down at 0.5660 while the FTSE joined global equity declines, down -0.3% after hawkish commentary out of the Bank of England. The BOE’s Mann indicated that monetary policy has been insufficiently aggressive & further tightening is needed ‘sooner rather than later’. He also mentioned financial conditions are looser than what’s needed and a UK rate pivot is not imminent. Markets now price a further 50p of hikes by June – taking the rate to 4.5% - and the policy rate being kept there until early 2024.
NZD
AUDNZD opens down at 3-week lows of 1.0923 after RBNZ’s Governor Orr yesterday declared monetary policy conditions need to tighten further. While acknowledging inflation is currently too high, he indicated there are early signs that inflation is slowing in Kiwi Land. This comes after the RBNZ raised their Cash Rate by 50bps on Wednesday to 4.75%. The consensus being that the Central Bank’s 4 percentage points of tightening is the past 16 months is beginning to flow through the economy.