AUD Suffers as Debt Ceiling Negotiations Sour Sentiment
AUD
The Aussie dollar opened at a sharp decline against the majors as risk sentiment wavered overnight with the debt ceiling negotiations in the U.S continuing to drag on. The ASX was flat on close, while Asian equities finished Tuesday’s session in the red. The Hang Seng dropped 1.25% while the Shanghai Comp was down 1.5%. Commodities faired similarly with Copper down 1.2%, Iron ore down 1.0% and gold up 0.1%. Some small data out of Australia yesterday, Flash Manufacturing PMI came in at 48.0 continuing the trend of contraction in 2023. Flash Services PMI came in at 51.8, only the second expansionary flash services data since October 2023, although still down on the previous month's reading. Today we have another small piece of data with MI Leading Index m/m set for release at 10:30am, however the focus of the local session today will be the RBNZ's interest rate announcement at midday (see below).
USD
AUDUSD pairing opens down at 0.6612, teasing the monthly lows overnight and trading through a 55 pip range. Wall street had another negative session with markets getting the jitters as the 1st June deadline for the debt ceiling negotiations fast approaches; the S&P 500 down 1.1%, the Dow Jones down 0.7% and the NASDAQ closed down 1.3%. To last night's US data, and Flash Manufacturing PMI coming in contractionary at 48.5 and missing the expectations of 50.0 flat. This continues the contractionary trend of 2023, with the exception of April. Contrastingly, Flash Services PMI came in strong, at 55.1, exceeding the expectations of 52.6 and continuing the expansionary trend since February. New Home Sales came in overnight at 683K, pipping the expectations of 665k. The FOMC minutes from the early May meeting will be published tonight. Markets will be focused on the discussion that led to the removal of forward guidance that had previously suggested a hawkish bias. At the press conference following the meeting, Chair Powell emphasized that the alteration of forward guidance in the statement was a “meaningful change”.
EUR
AUDEUR opens down at 0.6138, dipping yesterday evening upon the French and German PMI data releases. European equities were down, with the CAC closing down 1.3%, Eurostoxx50 was also down 0.99% while the DAX closed down 0.4%. The EUropean PMI data was consistent with what was released elsewhere around the globe, with French Flash Manufacturing PMI coming in as expected at 46.1, continuing the contractionary trend since July 2022, with the exception of January, and French Flash Services PMI not reaching the expected 54.0, coming in at 52.8. German Flash Manufacturing PMI came in well into contractionary territory, at 42.9, with their last expansionary data coming in June 2022. German Flash Services PMI continues the upward trend beating the expected 55.0 coming in at 57.8. Some small data set for release today, with the German ifo Business Climate set for release at 6:00pm.
GBP
AUDGBP opens lower at 0.5324 after having bottomed out just above the 53 handle early this morning. The FTSE remained relatively stable, dropping 0.1% at the close. Yesterday had the release of the Public Sector Net Borrowing coming in much higher than the expected 17.5B, at 24.7B. These large borrowing figures tend to be bad for the currency. The British also released their Flash Manufacturing PMI, missing the expected 47.9 coming in at 46.9, continuing the contractionary trend since July 2022. Their Flash Services PMI came in just below expected 55.5 at 55.1, slightly down from last month's 55.9 but still in expansionary territory. Some large data set for release today with CPI y/y, as well as Governor Bailey speaking at two separate conferences about the UK economy.
NZD
AUDNZD pairing stayed fairly flat from yesterday, opening at 1.0579 after trading wide ranges in the lead up to today's big Kiwi data. The Kiwi data calendar heats up today with this morning's Retail Sales q/q largely missing the forecasted 0.2%, coming in at 1.4%. However the main meal is at midday today, the RBNZ will release the Official Cash Rate, a Monetary Policy Statement and a Rate Statement, followed by a Press conference at 1:00pm. Economists are predicting a 25 basis point hike, however with the New Zealand Government releasing a large budget recently, against the advice of the RBNZ, there may be further hikes to come. Markets pricing 35bps into today's decision, so there's an outside chance of a 50bps rate hike which would lead to NZD strength.