European Interest Rates Rise by 25bps

AUD

The Aussie dollar opens slightly up against most majors while the ASX ended yesterday’s session down -0.1% with financials the worst performing sector for the day. Not much in the way of domestic data, while China’s Caixin Manufacturing PMI arrived at 49.5 (expectations were 50.0) pointing to a marginal deterioration in overall business conditions during April. Subdued demand conditions contributed to a further fall in employment within the sector, although helped to ease supply chain pressures while firms remained hopeful that demand will pick up in the coming months and rive production volumes higher. Today, we’ll see the RBA’s Monetary Policy Statement which will shed some light on the reasoning behind Tuesday’s largely-unexpected 25bps rate hike. The move takes the rate to 3.85%, unseen since Aril 2012, and is the 11th increase in the space of 12 months. Notably, RBA Governor Lowe insisted there would be a ‘worse outlook’ for the country if rates weren’t pushed through, despite the 3.2 million Aussie household mortgages reeling under the pressure.

USD

AUDUSD furthers the past week’s upward trend, opening at 0.6694 while Wall St traded lower with the Dow Jones closing -0.9%, the S&P 500 -0.8% and the NASDAQ -0.5%. The number on new applications for unemployment benefits rose by 13,000 to 242,000 last week, signaling the labour market is starting to weaken in reaction to the Fed’s interest rate tightening in an effort to reduce economy-wide spending & rein in inflation. The weakening labour market is expected to be supported by tonight’s data, where the Unemployment Rate is projected to increase by 0.1% to 3.6%. Further, the Fed itself forecasts the Unemployment Rate to rise to 4.5% by year-end as the result of a ‘mild recession’, whereas many economists see more upside risk to the jobless rate.

EUR

AUDEUR opens up at 0.6078 while the DAX & CAC fell -0.5% and -0.9% respectively after the ECB provided a widely-expected 25bps increase to their interest rate, now sitting at 3.75%. ECB President Lagarde was notably hawkish in her press conference, stating that price and wage pressures remained very strong and that there were still ‘significant upside risks to the inflation outlook’, adding later that it was very clear the ECB is not pausing any time soon. It was also noted that the decision to raise by 25bps was not unanimous, with many members opting for a 50bps bump. Not a great deal in terms of Eurozone data today, with Retail Sales m/m expected to fall -0.2% & further recent contraction within consumer spending.

GBP

AUDGBP opens slightly up at 0.5326 while the FTSE fell -1.1% after UK March CPI rose 7.9% y/y. Despite continued inflationary pressures, the UK’s services sector saw its fasted increase in business activity in over 12 months, fuelled by a strong upturn in new orders. Resilient demand and rising optimism regarding business outlook also resulted in a solid increase in employment numbers. Today, we’ll see PMIs for the construction sector, expected at 50.9 & reflecting minor expansion.

NZD

AUDNZD opens down to 1.0655 with the next piece of Kiwi data being their Food Price Index, arriving on Thursday May 11 with no expectations currently posted.