Fed Rate Hike causes choppy conditions in currency markets

AUD

The Aussie dollar is mixed across the board today, after an extremely volatile night with a slew of economic data printing from major economies. The CB Leading Index was released last night, coming in flat at 0%. This index is a combined reading of 7 economic indicators, showing no massive change across the Australian economy over the past month. In the last session, the ASX gained 0.9%, the Shanghai Comp lost 0.3%, Nikkei gained 1.9%. Australian linked Commodities all gained across the board with the overnight dip in US dollar value (in which these commodity prices are denominated) – Gold, Silver, & SGX Iron Ore all gained 1.4%, and CMX Copper gained 1.2%. Tomorrow morning, we have the Australian Flash Manufacturing and Flash Services PMIs – both showing expansionary numbers in the last printing.
 

USD

A massively volatile night in the AUDUSD pair, with the currency pair swinging a whole cent over the day, starting the day at a low of 0.6659, reaching a high of 0.6758 off the back of the Fed interest rate announcement last night – before settling down at current levels of 0.6682 – up on yesterdays open. Last night the Fed delivered a 25bps interest rate increase bringing the Bank Rate to 5%, however the statement following the rate hike ignited choppy price action on the USD against its major currency pairs. The 25bp increase was expected with the dot plot for the end of 2023 unchanged at 5.1% with 2024 revised slightly higher. There were some dovish hints in the statement however as they noted that recent developments could result in tighter financial conditions and there was some downgraded forward guidance with further policy tightening seen as “may be appropriate” compared to “will be appropriate” in February. Fed Chairman Powell was slightly hawkish in his early comments as he noted that inflation remains too high and the labour market was too tight. There were some more dovish hints in his speech however as he noted the data-dependency for future decisions and that a pause was considered in recent days given the stresses within the banking system, also calling for a review of the SVB collapse and strengthening of regulation if required.  Wall Street finished in the red off the back of the Fed announcement Dow Jones -1.5%, S&P 500 -0.5%, NASDAQ -1.4%
 

EUR

New lows on the AUDEUR at 0.6151 this morning – this level has not been hit since August 2021, close to 1 year and a half low – down on yesterdays open. These lows were helped along by ECB President Legarde speaking last night and commenting that there’s “no evidence that underlying inflation trending down… Neither committed to raise further nor finished with hiking rates.”  She also said “Must and will bring down inflation to target”. German Buba bank President Nagel also spoke on the current challenges facing the European Monetary Union, stating “Bank sector is resilient, and contagion risks to Eurozone banks are low” also saying “Further rate hikes needed in coming meetings if inflation develops as projected… ECB’s job not yet done, bank must be bold and decisive”. Markets read this as implying further rate hikes more likely than not and the Euro gained strength. The Eurozone current account also printed last night, coming in better than expected at 17.1B vs the 16.5B predicted, again, putting upward pressure on Euro prices. While not directly linked to the Eurozone, tonight the Swiss Central Bank announces their interest rate change (predicting a 50bp move from 1% to 1.5%), because of geographical proximity and trade relations, Swiss economic news generally has flow-on affects in the Eurozone. Tomorrow night, we have Flash Service & Manufacturing PMIs out of Germany and France, as well as for the Eurozone as a whole.
 

GBP

The Aussie Pound Sterling pair hit 1-year lows this morning touching the 0.5423 level, before bouncing up to 0.5434 at the time of writing – down on yesterdays open. A slew of data was released for the UK last night, with CPI y/y being the main figure, this printed at 10.4%, versus the 9.9% expectation, this miss here preludes the MPC’s Interest Rate announcement tonight, the Pound gained following the inflation figure being released. Markets are currently pricing in a 25bp increase – going from the current 4% to 4.25%. higher than expected inflation figures yesterday however have thrown some doubt into the waters. The following night on Friday we have flash Manufacturing and Services PMIs.
 

NZD

The Aussie and New Zealand dollar remains rangebound opening up at 1.0744 this morning – down on yesterdays open. Quiet on the Kiwi front for economic data for the rest of the week, with this pair only likely to be moved around by Aussie data and general market forces.