Risk off Sentiment Causes Choppy Conditions in FX Markets

AUD

The Australian dollar is mixed against its major pairs this morning, with increasing uncertainties around the banking industry causing choppy conditions in financial markets. AUD linked commodities finished the session in the red, with Gold -0.4%, Silver -0.3%, Iron -1.8%, & Copper -3%. No Aussie economic data out yesterday. Some mid-tier Chinese data printed, with retail sales y/y coming in flat on expectation with a 3.5% increase, and the Chinese Unemployment Rate increasing to 5.6% from 5.5%, missing the expected decrease to 5.3%. Today, Australia’s labour force report is due and is one of the four upcoming data releases nominated by RBA Governor Lowe as key inputs to next month’s cash rate decision. Measured employment declined in December (-20k) and January (-11.5k) and the unemployment rate rose by 0.2 ppts over that period.  Changing behaviours around the turn of the year, however, are expected to have influenced recent labour force outcomes. 
 

USD

After slight gains yesterday morning the AUDUSD pair fell 1.6% overnight driven by risk off sentiment and the release of US inflation data last night, reaching a low of 0.6590 before settling at current levels of 0.6617 in the aftermath, down on yesterday’s levels. The US dollars’ safe haven currency status held true, as negative sentiment in the banking industry across the US and Europe pushed a risk off sentiment in global markets. The S&P 500 slid -1.1%, Dow Jones -0.9% and NASDAQ was flat.  PPI data showed US inflation slowing, Core PPI m/m came in at 0% on 0.4% expectations, Retail Sales m/m missed expectations of -0.3%, coming in at -0.4%, versus the 3.4% increase last month. The Empire State Manufacturing Index missed expectations heavily, printing at -24.6 versus the -7.9 expectation. Tonight, The US Unemployment Claims is printing tonight (predicting 205k, -6k from the previous’ 211k) – as well as the Philly Fed Manufacturing Index (predicted at -14.7).
 

EUR

The Aussie gained against the Euro, rising 1.5% reaching a high of 0.6306, before settling back down to 0.6255 this morning. This Euro weakness was likely driven by cross currency pair influence as the EUR/USD pair fell 2% over the same period and more bank stability concerns in Europe. The CAC and DAX equities indices were down heavily at -3.3% and 3.6% respectively. This large drop in European equities and the Euro was due to headlines that a large shareholder in major Swiss bank Credit Suisse announced that he had ruled out providing more assistance to the troubled bank. Credit Suisse Stock slid as much as 30% and caused a broad sell-off in European and US bank stocks, which leaked into FX markets and caused a slide in general Euro strength. A few Eurozone low-tier data pieces printed last night. EU Industrial Production was better than expected at a 0.7% increase versus the 0.3% expectation, the Italian Unemployment Rate improved, moving from 8% to 7.8%. All eyes are on the ECB’s interest rate announcement tonight with markets are currently pricing in a 50bp increase.
 

GBP

The AUD/GBP is up very slightly at 0.5481, but has been consolidating around this level for the past week. 3-month lows on the Pound Sterling at this level, but on Monday this week we were at 1-year lows, touching 0.5428. The FTSE was down -3.8% off the back of general European bank stocks sliding. The UK’s Annual Budget was released last night – Chancellor of the Exchequer Jeremy Hunt announced major changes to the UK Tax and benefit system, incentivizing people to get back to work, businesses to invest, and trying to drag the UK economy out of Stagnation. The budget precited -0.2% for GDP growth in 2023 (prediction in November 22 was -1.8%), and moving to a +1.8% for GDP growth in 2024. Companies will get £9 billion ($10.9 billion) a year of tax relief through a system of allowances for those making investments. Families will see £94 billion of support to offset the soaring cost of living, with more than £5 billion a year allocated to help with childcare costs. “The UK economy is on the right track,” Hunt said in his speech to Parliament. “In November we delivered stability. Today it’s growth — [these are] the best investment incentives in Europe. The biggest ever employment package.” No more UK data today, tomorrow night Consumer Inflation Expectations will print, with the previous figure being 4.8% for the next 12 months.
 

NZD

The Aussie lost about 0.6% against the NZD, sitting currently at a 3 ½ month low of 1.0679. New Zealand’s Q4 GDP was released today and came in softer than expectation. Coming in at -0.6% versus the -0.2% expectation. Growth in the Activity Index, which is a proxy for GDP growth, slowed sharply in Q4 in year-ended terms, causing a sizeable decline in GDP in the quarter. This is New Zealand’s first quarter of negative growth since Q2 2022.