Hawkish Fed Sours Risk Sentiment
AUD
Surprisingly hawkish US Federal Reserve Meeting Minutes sparked a hasty decline in global risk sentiment, causing the Aussie Dollar to weaken in the aftermath and open lower against all major currency pairs this morning. Commodities had a poor day with Crude Oil -1.7%, Gold -0.6%, Silver -1.6%, Iron Ore -1.6%, Copper -5.9% and the outlier being Natural Gas which gained 3.7%. Asian equities closed mixed with both the ASX and the Shanghai Composite flat, whilst the Nikkei dropped 0.8%. A quiet data day yesterday with no releases locally or out of China. This morning, we saw Aussie Flash Manufacturing & Services PMI’s read relatively flat compared to forecasts, seeing little reaction from currency markets. Later today we will also see some more low-tier data in the form of the MI Inflation Expectations. We are also expected to see out of China their Foreign Direct Investment ytd/y (tentative), as well as their CB Leading Index m/m.
USD
The overnight session saw the AUDUSD pair drop close to a percent, opening lower this morning at 0.6619 as risk sentiment sullied following the release of the FOMC Minutes which failed to signal any urgency to reduce rates. Instead, the Minutes showed that there are concerns surrounding lack of progress with inflation, with various Fed Members willing to tighten rates further if required. This surprised markets, with the USD strengthening & risk sentiment taking a hit in the aftermath. Wall Street reacted negatively, finishing the session lower with Dow Jones -0.5%, S&P 500 -0.3% and NASDAQ -0.2%. Last night also saw April Existing Home Sales fall by 1.9% to 4.14 m/m, lower than forecasts of a 0.8% to increase to 4.23 m/m, which had little effect on markets. Tonight, we are expected to see the weekly Unemployment Claims, Flash Manufacturing and Services PMI’s and New Home Sales, all expected to remain relatively flat.
EUR
A lack of Euro data paired with a decline in risk sentiment caused the AUDEUR pair to drop about half a percent overnight, opening this morning at 0.6115. European equites closed lower with DAX -0.5% and CAC -0.6%. Last night we had two low-tier German data releases in the form of the 10-y Bond Auction and Buba Monthly Report, both seeing no reaction from markets. A pickup on the data calendar tonight as we expect to see the French, German and Eurozone Flash Manufacturing & Services PMI’s, with markets expecting mixed results across the board.
GBP
Weakened global risk sentiment and stronger-than-expected UK CPI data yesterday pushed the AUDGBP south, opening close to a percent lower at 0.5203. British equites closed lower with the FTSE dropping -0.5% over yesterday’s session. UK Consumer Price Inflation (CPI) data arrived at 2.3% (expectations were 2.1%), while Core CPI y/y also ticked higher compared to forecasts coming in at 3.9% verses 3.6%. Even so, the 2.3% figure is far lower than last month's 3.1% print, largely attributed to a reduction in the energy price cap in the UK. We also saw PPI Input and Output which came in mixed, RPI y/y was flat and HPI y/y gained 2% to read at 1.8% (above market forecasts). Tonight’s main event for the GBP will also come in the form of their Flash Manufacturing & Services PMI’s, which are expected to remain relatively flat.
NZD
The AUDNZD hit 2-month lows of 1.0844 off the back of the RBNZ interest rate decision yesterday, losing the 1.09 handle to open this morning at 1.0849. Yesterday’s Official Cash Rate decision saw the Kiwis hold at 5.50%, which in itself wasn't groundbreaking, however, markets interpreted the failure to mention the possibility of future rate cuts in the following Statement and Conference as a sign that the central bank is not yet resolute in which monetary policy path to take. This morning's NZ Retail Sales data smashed expectations, with both the headline & core figures well-into positive territory (expectations were either a slight contraction or little change). Nothing else until tomorrow’s Trade Balance.