RBA Set to Raise Interest Rates 25bps Today
AUD
The Aussie dollar takes a tumble against the majors overnight in the lead up to the RBA’s cash rate decision today, opening down against all major currency pairs this morning. Asian equities were mixed on close last night with the ASX +0.6%, Shanghai Comp -0.2% and Nikkei +1.1%. Commodities were also mixed with Crude Oil +1%, Natural Gas -6.6%, Gold -0.2%, Silver -0.3% and Iron Ore +0.2%. A quieter day yesterday with only the MI Inflation Gauge m/m come in at 0.4% a drop from the previous reading of 0.9%, this had little effect on currencies. A bit more action on the cards today with the stand out being the RBA’S interest rate decision and following statement. Today’s decision is widely expected to produce a 25bp rate hike, although that alone should not be market-moving given about 23bp of tightening is priced. The key swing factor should be any changes to the policy text that dislodge those firm expectations for the two follow-up rate hikes. In addition to this , we will also see the Trade balance figures coming out of both Australia and China, along with China’s USD-Denominated Trade Balance and Aussie Retail Sales m/m which opens the door for further potential market volatility.
USD
The AUDUSD pair crept lower over yesterday’s session, seeing lows of 0.6715 before a slight recovery to open this morning at 0.6730. US equities had a slight rally with Dow Jones +0.1%, S&P 500 +0.2% and NASDAQ +0.1%. Last night we saw US Factory Orders for January declined by 1.6% to print slightly better than expectations of a 1.8% contraction with the core measure at 1.2% against forecasts of 1.0%. Tonight we will see Fed Chair Powell Testify which will include a question and answer session, since the questions are not known beforehand they can make for some unscripted moments that lead to heavy market volatility. We will also see Final Wholesale Inventories m/m which is expected flat at -0.4%.
EUR
We saw a steep and steady decline in the AUDEUR pair overnight, with over a 60-pip drop to 2-month lows of 0.6295, opening this morning at 0.6300. European equities held steady with both the DAC and CAC rallying 0.5% and 0.3% respectively. Both pieces of data out of the eurozone missed last night with Sentix Investor Confidence missing expectations by 5.5 coming in -11.1. Retail Sales m/m also missed expectations by 0.5% despite coming in positive at 0.3%. The ECB’s Lane made comments during the European morning, saying that data ahead of the May decision will guide monetary policy and it’s important to measure the ECB’s cumulative tightening so far. Lane also added that monetary policy shouldn’t be on autopilot. ECB’s Holzmann also said that he would support 50bp hikes in March, may, June and July with rates to be taken above 4% in order to be restrictive. A quiet day ahead with only German Factory Orders m/m.
GBP
With a lack of data, the AUDGBP opens slightly lower dropping around 20 pips to open this morning at 0.5597. British equities were lower on close last night with the FTSE loosing 0.2%. A quiet night in data, only the release of UK Feb Construction PMI, which rose to 54.6 vs 48.4 in January. Another quieter night ahead with some mid-tier data in the form of the BRC Retail Sales Monitor y/y and Halifax HPI m/m. Both unlikely to inspire major market movement.
NZD
Despite seeing a fairly stagnant session the AUDNZD dropped slightly in the early hours of the morning, opening slightly lower at 1.0867. Yesterday we saw the ANZ Commodity Prices m/m beat previous readings of -0.9% to come in at a positive 1.3%. Nothing else on the cards until Wednesdays GDT Price Index.