USD Weaker as European Interest Rate Go Higher
AUD
The Aussie Dollar has enjoyed more upside overnight in what has been a very good week for the importers, up against all the major currency pairings. Support for AUD began with a solid employment report yesterday which markets have read as perhaps a reason for the RBA to continue to continue to raise interest rate in coming months. The figures showed a bumper 75.9k new jobs created which was well above the 18.6k expected, and miles above the previous month's reading of -4.0k. The Unemployment Rate also showed improvement with a 0.1% drop to 3.6%. There is a growing train of thought that the RBA must cause job losses with higher interest rates to reduce the risk of wage-driven inflation resulting from tight labor market conditions. The ASX index faired well as one would expect after the data, rising 0.2% overnight. Commodities were a mixed bag, with Gold -0.1%, Silver +0.1%, Iron Ore -1.3% and Copper +0.5%. No local data to finish the week so movements to be driven by offshore factors.
USD
AUDUSD pairing had a very strong night, gaining 1.27% to open at 0.6881 which is almost 4-month highs. Wall Street remained well supported overnight with all three indices showing gains; the Dow Jones was +1.3%, S&P 500 +1.2% and NASDAQ +1.1%. US data overnight was generally good which assisted US equities, the highlights being Empire State Manufacturing Index and Retail Sales which both outstripped expectations. Despite the strong US data, the USD actually weakened overnight, undermined by a strong EUR after the ECB had an interest rate hike of their own (see below) which then opened the door for the AUD gains. Tonight FOMC Member Waller speaks, followed by the release of Prelim UoM Consumer Sentiment tipped to increase from last release of 59.2 up to 60.1.
EUR
The AUDEUR opens slightly higher at 0.6287 this morning after what was a busy night in Europe. European equities had a poor showing, with the DAX down 0.1% and the CAC down 0.5% after interest rates went up again. To the main event, the ECB raised rates by 25bp as widely expected and issued a hawkish statement where they indicated that inflation was projected to remain too high for too long and rates would need to reach sufficiently restrictive levels where they would remain as long as necessary. ECB President Lagarde said “Barring material change, very likely that we will continue to raise rates in July”. This was echoed later in the night with the ECB Press conference where Lagarde said that the “ECB (interest rate) is not yet at destination”. These statements have greatly increased the demand for EUR, which has sapped strength away from the USD. Some small pieces of data are set for release today out of Europe, with Final CPI y/y tipped to remain flat at 6.1% as well as Final Core CPI y/y expected to remain flat at 5.3%.
GBP
AUDGBP faired similarly to the EUR, slightly higher at 0.5383 after a busy overnight session. The FTSE opening 0.3% higher, however there was no data released out of Britain yesterday, big or small. Earlier this morning, MPC Member Cunliffe spoke, however this did not lead to any movements in the markets. GBP volatility can be attributed to the European data, which tends to have a knock on effect for the Pound. Tonight we have Consumer Inflation Expectations which markets have not factored in a prediction.
NZD
AUDNZD pairing forged steadily higher over the last 24hrs, opening at 1.1041 this morning, back to the peak of Tuesday, highs that haven’t been touched since February. The resilient Aussie employment report yesterday the likely driver for the gains. Yesterday the Kiwi GDP y/y came in as per expectations at -0.1%, and with the previous reading at -0.7 New Zealand is officially in recession. This morning we also had the BusinessNZ Manufacturing Index release at 48.9, slightly up from the previous reading of 48.8. No further data is set for release out of New Zealand this week.