US Fed Continues to Signal Further Rate Hikes
AUD
The Australian dollar is down against the major pairs this morning with the exception of the Kiwi Dollar. With no Aussie data out on Friday, the AUD’s price points against major pairs were at the whim of other economies’ data. Namely US Retail Sales data and Fed members speaking which threw the Aussie around over the weekend. Commodities were mixed with Gold up 1.8%, Silver down -1.8%, SGX Iron Ore exchange down -1.8%, and Copper up 0.1%. The ASX also gained 0.5% on Friday's session. Tomorrow, the RBA’s Monetary Policy Meeting Minutes will be released, which markets will scrape for clues on the next interest rate decision. Although, the minutes take on somewhat lesser importance given Governor Lowe gave a speech the day after the Board meeting. In that speech, Lowe emphasised that the Board would have “the benefit of an updated set of forecasts and scenarios” when deliberating about monetary policy. Flash Services and Manufacturing PMIs for Australia are also out on Friday. There is a litany of data out of China tomorrow, including Industrial Production, Retail Sales, Unemployment rate and Foreign Direct Investment.
USD
Much of the previous week’s AUD strength against the US dollar was lost on Friday night with the pair falling 1.3%, from 0.6790 to 0.6694, before bouncing back very slightly to this morning’s levels of 0.6705. On Friday Core Retail Sales m/m showed a -0.8% drop against the -0.4% expected, and headline Retail Sales showed a massive -1% versus -0.4% expectation. The USD initially weakened off this news, but markets digested details of the report and sold majors back to previous levels. Further USD strength was pushed by Top Fed Official Waller speaking 15 minutes after this data, saying inflation “is still much too high and so my job is not done” – implying further rate hikes are due. On Saturday Prelim University of Michigan Consumer Sentiment printed slightly better than expectation at an index level of 63.5 vs. 62 expectation. Wall Street fell slightly lower but the three major indices finished higher on the week, S&P500 was down -0.2%, NASDAQ -0.4%, and Dow Jones -0.4%. A fairly heavy week in economic data for the US this week. Tonight we have the Empire State Manufacturing Index (a measure of health for New York’s manufacturing sector) expected to improve on last month at -17.7, versus last month’s -24.6. Unemployment Claims on Thursday are expected at 240k, a slight improvement against 239k previous. And Flash Manufacturing and Services PMIs will be released on Friday, all these generally have a strong affect on US currency cross price points.
EUR
The AUD fell sharply against the Euro on Friday night, losing a full 0.4% in the space of an hour. Opening up at 0.6100 this morning. The Euro remains strong as the ECB’s explicit public stance from official members is that more rate hikes are needed. ECB member Nagel reaffirmed this on Saturday stating “I do not think our job is already or even mostly done; more rate hikes are needed” and “Eurozone inflation risks tilted to upside; [it’s] not a given that inflation returns to target over medium term”. French Final CPI m/m was released at the tail end of last week, coming in slightly above expectation at 0.9%, versus the 0.8% expectation. A busy week ahead for European economic data, we have ECB President Lagarde speaking tonight, and French, German and total Eurzone PMIs out on Friday.
GBP
The Aussie Pound Cross shifted lower over the weekend, falling about 0.5%, to a level of 0.5393 this morning. The pair reached a high of 0.5431 on Friday night. Bank of England member spoke at a panel discussion titled “how should central banks battle high inflation?”, stating, that the UK is “yet to see most of the impact of rate hikes, need to be patient”. And that rates should be the “last defense in stability”. Inflation is still the hot button issue in the UK, with the y/y figure still sitting at 10.4% as of February, and 1.1% m/m as of March. Major events in the economic calandar are the claimant count change, expecting a 10.2k increase (versus last month’s -11.2k) and CPI y/y figures out on Wednesday, expecting a slight decrease in the inflation rate, 9.8% being what markets have priced in.
NZD
The Aussie gained against our antipodean counterpart over the weekend, gaining 0.4% and opening at 1.0803 this morning. This level has been tested 3 times in the past 4 weeks and hasn’t been able to push past it. This strength is off recession fears in New Zealand, Their central bank has raised rates to the highest out of any developed economy at 5.25%, and now their GDP growth and employment rates are beginning to feel the squeeze. The NZ Food Price Index m/m was released this morning, an indicator of consumer inflation for food and food services, printing at 0.8%, down from the previous 1.5% increase. On Thursday, the Q1 CPI report is due and will be watched closely by markets, given that the RBNZ recently removed its explicit tightening bias and has stated they will be watching data closely to inform their next interest rate decision. CPI is currently expected to increase slightly to a rate of 1.5% from 1.4%.