AUD Dive Pauses for Breath
AUD
The Aussie dollar opens largely flat against majors after recent steady declines & heightened global risk sentiment in the face of looming second-round inflation. A relatively quiet day saw the ASX close down -0.8%, led by blue chips and the mining sector, while Asian equities were mixed. Notably, the Hang Seng fell -2.2%, furthering it’s period of stable disequilibrium off the back of Fed Chair Jerome Powell’s hawkish commentary on Tuesday… Yes, the Fed plan to continue hiking interest rates. Little domestic data yesterday, while RBA’s Governor Lowe gave a speech at the AFR Business Summit. He indicated January’s y/y fall in CPI suggested headline inflation has peaked in Australia, with the central bank maintaining their expectation that inflation will trend lower this year and next. He also noted the central bank is ‘closer to the point where it will be appropriate to pause interest rate increases’. So, is it one more and done for the RBA? Potentially, although it’s clear that the RBA aren’t sure yet either & their decision will be determined by the incoming data. Regarding data, our next major piece will be the Unemployment Rate next Thursday. It’s currently expected to remain flat at 3.7% given the tight labor market, although Lowe’s reassured Aussies that the chances of a wage-price spiral remain low.
USD
USD sellers rejoice this morning as the AUDUSD remains at 4-month lows with the rate currently sitting at 0.6588. Wall St was mixed overnight as markets continued to be driven by Fed Chair Powell’s hawkish commentary earlier this week . The DJ closed -0.5%, the S&P -0.2% while the NASDAQ posted minor gains of 0.1%. Recent USD strength has been attributed to Powell’s surprisingly hawkish commentary at his semi-annual Senate testimony, having said ‘the ultimate level of interest rates is likely to be higher than previously thought’ and ‘we (the Federal Reserve) would be prepared to increase the pace of rate hikes’. This furthers the repricing of rate expectations after the Feb FOMC Meeting Minutes had led investors to bet on an early end to the tightening cycle. As continually shown over the past year, US inflation remains much more persistent than what’s widely believed. Last night, strong US employment data delivered further strength to the Greenback with higher-than-expected JOLTS Job Openings and ADP Non-Farm Unemployment Change figures. 242k jobs were added, beating expectations of 197k & signaling robust hiring (which is good for the economy and workers). On the other hand, pay growth is still quite elevated. The modest downturn in pay increases, by itself, is unlikely to drive down inflation quickly in the immediate-term. Tonight, we’ll see monthly Unemployment Claims expected to increase by 5k to 195k.
EUR
AUDEUR opens flat in the region of 13-month lows at 0.6247, while European equities finished the session mixed with the DAX up +0.5 & CAC down -0.2%. Euro area GDP failed to grow in the fourth quarter, with the figure revised down from +0.1% to 0.0%. Further, poor household consumption and investment data indicates that underlying developments are weaker than expected, vindicating concerns about eurozone economic performance. While domestic demand remained low, the headline figure was bolstered by a net-increase in exports. The next major economic event will be Friday’s ECB interest rate decision, where markets are expecting the central bank to hike by 50bps to 3.5%. For the ECB, the release of the underlying GDP components actually provides a dovish signal. At face value, stagnation in GDP is not a sign that demand is cooling quickly, but the underlying components indicate economic conditions have deteriorated further than previously expected.
GBP
AUDGBP opens slightly down at 0.5563 while the FTSE closed the session up +0.1%. Overnight, the Bank of England’s Dhingra said inflation is expected to fall in 2023 & further tightening is a risk to output. She also mentioned overtightening would risk the UK missing their CPI target & that holding policy steady would be the most prudent approach. We have a myriad of low-tier data tomorrow, including Industrial Production m/m where activity is expected to remain flat, while the main focus will remain on the UK’s GDP m/m. Markets are expecting a slight increase of +0.1%.
NZD
AUDNZD opens flat at 1.0785 after a quiet 24h from our Kiwi friends. No data’s expected today, while tomorrow’s BusinessNZ Manufacturing Index & Manufacturing Sales q/q may turn heads. No expectations are currently posted. Despite lower-than-expected inflation figures & a disastrous cyclone adding to existing supply concerns, the Reserve Bank of New Zealand have continued to delay their dovish pivot. Since we won’t see CPI data before April (only 4th quarter GDP), there’s a good chance we won’t see a pivot then either. Over the past year the central bank has hiked rates to 4.75%, with their projected terminal rate currently sitting at 5.5%.