USD Firms Ahead of Tonight's Core PCE
AUD
The Aussie Dollar weakened over the past 24h after Iron Ore prices slumped to the lowest level since October 2023. Yesterday's CPI print didn't lend the AUD a hand, remaining at 3.4% y/y (exp. 3.6%), being the equal-lowest annual figure in over 3 years and providing some reassurance to the RBA that there may be no need for further tightening (although the figure was largely goods-focused, as opposed to services prices). Commodities closed mostly in the red, with only Gold up 0.2%, Silver down -0.2%, Iron Ore down -0.7% and Copper down -0.3%. Asian equities were in a similar boat with the ASX remaining unchanged at 0.0% and the Shanghai Comp closing down -1.9%. Today at 11:30am we have Retail Sales m/m, expected at +1.6% after a -2.7% fall in December (largely due to December's consumer spending being brought forward to November's Black Friday sales).
USD
Weaker-than-expected US GDP figures didn't stop the greenback from strengthening overnight, seeing AUDUSD break through the 0.65 barrier to a 2-week low, opening this morning at 0.6493. Wall Street closed lower with the Dow and S&P 500 both down -0.2% and the NASDAQ down -0.6%. To the news, last night we had the Prelim GDP q/q come in lower than expected at 3.2% (exp. 3.3%) and Prelim GDP Price Index q/q came in higher at 1.6%, with expectations to be unchanged at 1.5%. Tonight, we have Unemployment Claims, expected to increase from 201k to 209k and the Core PCE Price Index m/m (the Fed’s preferred method of gauging inflation) is expected at +0.4% (prev. +0.2%), which would be the highest figure in nearly a year. Fed officials have stressed they're in no rush to lower borrowing costs and will only do so when once they're confident that inflation is retreating on a sustained basis. Tonight's PCE data will likely validate that stance and potentially further diminish market expectations of Fed interest rate cuts in the near-term. Not too long ago, markets were pricing in 150bps-worth of cuts from the Fed this year. Currently, expectations have pulled back to just under 80bps.
EUR
The AUDEUR collapses yesterday, breaking through the 0.60 barrier and crashing to a low that hasn’t been seen since November, opening this morning at 0.5992. European equities were soft into the close, with the DAX up 0.3% and the CAC up 0.1%. There was no FX related news yesterday, but today we have the G20 meetings commencing. Also, being released today is the German Prelim CPI m/m, expected to increase from 0.2% to 0.5%, and Spanish Flash CPI y/y expected to decrease from 3.4% to 2.8%.
GBP
The AUDGBP takes a tumble yesterday, steadily falling to a 14-day low, opening this morning at 0.5121. British equities were red into the close, with the FTSE closing down -0.8%. MPC Member Ramsden spoke yesterday at the Association for Financial Markets, speaking largely on bonds, not currencies. Tonight, there is Net Lending to Individuals m/m, expected to increase from 0.4B to 1.9B.
NZD
The AUDNZD jumped to a 12-day high yesterday, gaining over a cent, coming within striking distance of the 1.0690 barrier, with a light retrace overnight to this morning’s open of 1.0645. The Official Cash Rate was released at midday yesterday, coming in unchanged at 5.50%, with future’s markets having a 30% chance of a potential hike. The unchanged rate with the dovish commentary from the RBNZ, saying that rates are sufficiently restrictive, caused the weakening the NZD. Governor Orr also spoke this morning, stating that the Official Cash Rate is restricting demand, adding to the dovish data. Today at 11am we have ANZ Business Confidence, no forecasts but previously at 36.6.