China Vows to Transform Economy

AUD 

The Aussie Dollar opens a tad lower against majors this morning after risk sentiment soured overnight, seeing Asian equities close mostly lower with the Hang Seng -2.6%, Nikkei flat and ASX -0.2%. Yesterday, we saw the Aussie Current Account print in the green at 11.8B from its previous at 1.3B. We also saw the Caixin Services PMI from China print short at 52.5 from its previous at 52.7, a report by S&P Global mentioned a few key findings; “Business activity growth softened amid muted uptick in new orders, staff numbers fell for first time in three months and a stronger rise in costs led to fresh increase in output prices." Yesterday, Beijing set this year's China growth target at 5% (without answering too many questions) in line with last year's target. Crises in the real estate sector, mounting local government debt and deteriorating consumer sentiment will make this a difficult feat. Notably, the inflation target was set at 3%, providing policymakers with further direction when laying out stimulus plans, potentially benefiting the Aussie Dollar (if achieved). Today, all eyes are on the Aussie GDP q/q in the mid-morning, expected at +0.2% in line with the previous reading. The annualised figure is expected at +1.4% with growth driven by public demand (infrastructure spending and social benefits). In contrast, private demand is likely to drag on growth.

USD

The AUDUSD opens in the red this morning at 0.6501, having peaked at 0.6521 in the overnight session before falling off as risk sentiment soured. Wall Street was in the red to close off the late session, with the NASDAQ at -1.9%, the Dow Jones at -1.2% and S&P 500 at -1.2%. This morning, the US ISM Services PMI fell short of expectations at 52.6 (exp. 53.0, prev. 53.4), displaying mixed signals with an uptick in New Orders and cooling labour figures. A massive night ahead for the US Dollar, bringing ADP Non-Farm Employment Change, JOLTS Job Openings and Fed Powell Testifying on the Fed's actions in Washington DC. Powell is expected to double down on his message that there’s no rush to cut interest rates, especially after fresh inflation data showed that price pressures persist. We'll also see the Beige Book release at 6am tomorrow, providing the Fed with info on the current economic landscape leading up to the FOMC's next interest rate decision.

EUR

The AUDEUR opens in the red this morning at 0.5991, while equities closed the late session off also in the red with the DAX at -0.1% and the CAC at -0.3%. Yesterday, we had the French Industrial Production m/m which printed in the red at -1.1% with expectations at -0.1%, the Spanish Services PMI which printed in the green at 54.7 with expectations at 53.4, the final services PMI which printed slightly in the green at 50.2 with expectations 50, and the PMI m/m which printed in the red at -0.9% with expectations at -0.1%. Tonight, we’re having the German Trade balance and Retail Sales m/m. All eyes are on Friday morning's Main Refinancing Rate, expected to hold at 4.50%. Market expectations of interest rate cuts have cooled, with recent pricing of 2 x cuts in June now near-zero. 150bps of cuts (previously priced in for 2024) is not sitting at about 90 bps as global inflationary concerns have resurfaced in recent times.

GBP

The AUDGBP opens in the red at 0.5116 while equities closed the late session in the green with the FTSE up 0.1%. Yesterday we had the BRC Retail Sales Monitor y/y which printed in the red at 1% with expectations at 1.6% and the Final Services PMI which also came in short at 53.6 from expectations at 54.3. The S&P Global report mentioned some key findings; Fastest rise in new work since May 2023, Business optimism at its highest for two years and input price inflation edges up amid strong wage pressures. Tonight, we’re going to see the Construction PMI release with expectations at 49. All eyes are on tomorrow's Annual Budget Release where speculators made mention; “The government’s decision to freeze tax thresholds until 2028 has drawn attention to the concept of fiscal drag, wherein taxpayers are inadvertently pushed into higher tax brackets due to inflation-driven income growth. Chancellor Hunt faces pressure to alleviate this burden, although limited fiscal headroom presents challenges to substantial tax cuts.

NZD

The AUDNZD reached 1.0663 lows yesterday afternoon before clawing back a tad to open at 1.0682. A quiet week this week for the Kiwi, yesterday’s ANZ Commodity Prices m/m came in at 3.5% higher than expectations at 2.1%, and this morning we saw the GDT Price Index print at -2.3% from a previous 0.5% print. Tomorrow, we’re going to see the Manufacturing Sales q/q print with its previous level at -2.8%.