AUD gets battered, RBNZ Hikes to come to an end?
AUD
The Aussie Dollar took a beating overnight and lost out against most trading partners as overwhelming risk-averse market sentiment sunk the Aussie, with AUD/NZD the only exception even as the RBNZ raised rates yesterday. Asian equities were lower on Wednesday with the Nikkei down -0.9% and Hang Seng falling -1.8%. The ASX closed -0.6% lower with the major miners falling sharply. Yesterday’s Melbourne Institute Leading Index came in at 0.0% which was expected, with no impact on markets at all. It’s been a quiet week domestically with all the focus on abroad, with no major local data for the remainder of the week.
USD
The AUD/USD is seeing red and has dropped down to the lowest level for 2023, currently trading at 0.6544, a low not seen since mid Nov 22. Wall St traded lower overnight with the S&P 500 and the Dow Jones both closing -0.7%, and the Nasdaq faring little better at -0.6%. The overall market mood is extremely cautious as US debt-ceiling issues are taking more time than thought. Treasury Secretary Yellen was on the wires as debt ceiling talks dragged on, reiterating that the US Treasury may run out of cash as soon as June 1 and that she would update Congress as to the exact timeline. This morning saw the FOMC Meeting Minutes released, which showed a gloomy outlook as Fed officials were split on the need for more hikes and stressed a data dependent approach to future meetings though cuts were seen as unlikely. Risks to growth were seen to be skewed to the downside with inflation risks skewed to the topside, with the forecast of a mild recession in late 2023. More data from the US tonight as unemployment numbers and preliminary GDP numbers are released.
EUR
The AUD/EUR also lost ground as the sour mood swept the Aussie under the rug, the pair now trading at 0.6082. European equity markets remained heavy into the close and ended the day with significant losses. The FTSE and CAC closed down around 1.7% with the DAX shedding 1.9% on the day. German ifo Business Climate index dropped from 93.4 to 91.7, worse than expectations of 93.0 and dropping for the first time in six months, signaling that recent bank turmoil, looming recessions and growth concerns are catching up with the European powerhouse. Tonight will see German Bundesbank President Nagel to deliver a speech at a meeting in Switzerland.
GBP
The AUD/GBP plummeting down and approaching fresh lows to trade at 0.5288 even as the UK welcomed a cooler inflation report. The British Pound did get a lift in reaction to the release of stronger-than-expected UK inflation figures, which reported that the headline CPI was 8.7% instead of the expected 8.2%. Though higher than expected, it marks a sharp deceleration from the 10.1% YoY rate registered in March, reaffirming expectations that fewer rate increases by the BoE will be needed in the coming months to bring down inflation. Retail Sales are the next major piece of data on the agenda for the UK, released tomorrow afternoon.
NZD
The AUD/NZD was the only outlier of the majors, climbing almost 2 cents to trade at 1.0723 this morning. The New Zealand dollar tumbled across the board after the RBNZ caught markets off-guard and signalled it was done with its most aggressive hiking cycle since 1999. This rhetoric overshadowed the central bank raising its official cash rate (OCR) by 25 bps yesterday, to 5.5% - the highest level since the 2008 financial crisis. RBNZ boss Adrian Orr said he was confident in the level of restrictiveness of interest rates at the present point. No more data from the NZ for the remainder of the week.