Big Week of Central Bank Decisions Ahead

AUD/USD

 0.6752

AUD/EUR

 0.6272

AUD/GBP

 0.5394

AUD/NZD

 1.1019

AUD/JPY

 91.15

S&P/ASX200

 7123

AUD

Improved risk sentiment saw the Aussie Dollar edge higher over the weekend, while Asian equities had a strong day yesterday (Nikkei up +0.5%) as the ASX had a day off. Today we’ll see NAB Business Confidence (expected to remain unchanged at 0) while Thursday’s labour data remains the domestic focus for this week. In particular, the Unemployment Rate is expected to remain unchanged at near-historic lows of 3.7% at firms struggle to recruit suitable staff, incentivizing with higher wage offers and potentially driving inflation higher. As recently mentioned by RBA Governor Lowe, this remains the central bank’s key focus in the fight against inflation, as opposed to last year’s concerns surrounding supply constraints.

USD

AUDUSD opens near 1-month highs at 0.6751 after the US Dollar retreated on Friday in the face of increased jobless claims & renewed hopes that a peak in the Fed’s interest rates is nearby. The week ahead is one of the busiest for the US this year, so large-scale volatility may be on the cards. The main features are May CPI (tonight), and the FOMC meeting (Thursday) where the Fed is expected to hold the current interest rate at 5.25%. We’ll also see Producer Price Inflation tomorrow as well as Retail Sales, Industrial Output and manufacturing indices later in the week.

EUR

AUDEUR rallied over the weekend, hitting 3-month highs of 0.6284 before dipping to open today at 0.6275. Equities also had a strong session yesterday with the DAX and CAC gaining +0.9% and +0.5% respectively. While the indices have done well so far this year, they’ve moved largely sideways this month in anticipation of the ECB’s interest rate decision this Thursday evening. There is practically no doubt that it will lift key rates by 25bps, taking the deposit rate to 3.5% after May inflation stood at +6.1% y/y (the central bank’s most-recent CPI forecast for this year was +5.3%). Tonight, we’ll see German ZEW Economic Sentiment data which is expected to slide given China’s lack of growth continues to impact German manufacturing firms.

GBP

AUDGBP opens near 2-month highs at 0.5396 while the FTSE gained +0.1% overnight after Sterling weakness in the face of somewhat hawkish commentary out of the Bank of England. In particular, Member Mann indicated services price inflation remains a key concern for achieving the 2% CPI target, bolstered by concerns surrounding hefty wage increases and upside risks to increased disposable household incomes. Given services inflation shows ‘little signs of slowing so far’, the Bank of England may have to raise the current rate from 4.5% to stamp out further price pressures.

NZD

The Aussie Dollar has furthered its rally against the NZD to open at 1.1017 despite a lack of economic data over the weekend. The key focus this week remains on Thursday morning’s quarterly GDP announcement with the figures expected at -0.1%.