RBNZ Combatting Early Rate Cut Expectations

AUD

The Aussie Dollar opens stronger against most majors, experiencing a small rally close to midnight before giving back some gains, despite little data coming out during Tuesday’s intra-day and overnight session. Yesterday we received the latest updates on both Westpac Consumer Sentiment and NAB Business Confidence, where Consumer Sentiment decreased 2.4% to 82.4 to continue its two-year slump with little signs of lifting, whilst Business Confidence rose 1 point to +1 index point, remaining below average. Equities had a strong day, with +1.1% gains in the Nikkei and +0.6% gains in the Hang Seng, whilst ASX closed +0.5% higher as Materials and Utilities outperformed. Commodities saw a mixed day with Crude Oil -1.3%, Natural Gas -2.5%, Gold +0.4%, Silver +1.0% and Iron Ore +0.5%. No local or Chinese data coming out today, however, on Thursday we will see several inflation reports for China, with Chinese CPI y/y, PPI y/y and New Loans to be released. 
 

USD

The AUDUSD opens higher at 0.6629 in anticipation of key US inflation figures tonight, with minimal figures coming out on Tuesday. Yesterday we just had their Real Clear Markets Economic Optimism missing expectations at 43.2, missing by 1 point, to show increasing pessimism by American Consumers. Despite this, US Equities had a modest day, with the Dow flat, S&P 500 +0.1% and Nasdaq +0.3%. Tonight's key focus will be on the CPI numbers, where both Core CPI m/m and CPI m/m are expected to print at +0.3% and CPI y/y is expected at 3.4%. Markets are currently watching CPI numbers to tweak expectations on the timing and extent of potential FOMC interest rate-cuts, especially after strong labour figures last week which pushed rate-cut expectations back further.
 

EUR

The AUDEUR opens higher at 0.6104 to defy some strong economic figures out of France yesterday. On Tuesday the only figure we had was French Trade Balance, beating expectations to show a deficit of just -5.2B, against market expectations of -7.0B from its previous -7.2B, with little effect on the AUDEUR pair. Equities retracted with the DAX down -1.3% and CAC down -0.9%. Tonight, we only have the Italian Retail Sales m/m, which is looking to add +0.3% from previous. The headline event for this week will be the ECB Main Refinancing Rate on Thursday night, where markets are expecting the ECB to hold rates at 4.50%. Markets further predict a first rate cut of 25 basis points in June, with 3 more to follow by the end of 2024. Spanish Central Bank Governor Pablo Hernandez de Cos has also spoken to the media echoing this, stating “central scenario is that June could actually be the first reduction”. 
 

GBP

The AUDGBP opens in the green at 0.5227, also defying stronger Retail Sales figures coming out of the UK yesterday. On Tuesday the BRC Retail Sales Monitor y/y printed at a much stronger +3.2% against the expected +1.8%, with little reaction from the AUDGBP pair as it continued to push higher into the overnight session. UK equities also showed little reaction as FTSE printed +0.1% for the day. Looking forward, there’s no more data for today but we will get insight into their housing sector tomorrow, where the RICS House Price Balance and BOE Credit Conditions Survey will be released.
 

NZD

The AUDNZD opens slightly lower at 1.0931 in anticipation of the RBNZ Official Cash Rate release today at 12pm. Economists largely agree the Reserve Bank of New Zealand will hold the Official Cash Rate at 5.5% for a sixth consecutive meeting. Markets have taken an aggressive view on the timing and extent of potential interest rate cuts; however, economists believe it will take time for pressures to ease enough to allow the RBNZ to begin cutting rates. This is mostly due to the risks of an uncertain inflation outlook due to strong wages growth as well as elevated inflated market expectations, but ultimately markets are currently looking for cuts starting in August. Given a hold is priced-in today, market participants will likely scrutinize the language and tone in the accompanying RBNZ Monetary Policy Statement.