Will the RBNZ Pivot Today?
AUD
Despite some economic data misses both locally and out of China, the Australian Dollar held steady, opening this morning a little higher against most major currency pairs. Asian equities performed decently over yesterday’s session, closing in the green with ASX +0.2%, Shanghai Comp +0.3% and Nikkei +3.4%. Commodities on the other hand were mainly lower, with Crude Oil -2%, Natural Gas -0.8%, Gold -0.1%, Iron Ore -0.3% and Silver +0.3%. Yesterday’s main events included both Australia’s Wage Price Index q/q and China’s New Loans. The Wage Price Index missed the expected reading of 0.9%, coming in at 0.8%, with the largest industry contributors being professional, scientific and technical services, public administration and safety, and construction. Weakness in private sector wage growth was offset by strong wage gains in the public sector. The figure has done little to remove uncertainty surrounding the RBA's next interest rate decision, with the annualised Wage Price Index sitting at 4.1% (falling little since the 4.1% figure at the end of 2023). China’s New Loans also missed expectations of 1280B, coming in at only 260B dropping 1870B from previous readings highlighting weak demand as a prolonged property downturn and job insecurity drag on business and consumer confidence. No domestic data today. Tomorrow will bring Australia's Unemployment Rate and Employment Change figures.
USD
The AUDUSD pair gained some ground overnight off the back of poor US PPI readings, comfortably regaining the 0.66 handle to opening close to half a cent higher this morning at 3-week highs 0.6636. Wall Street performed strongly over yesterday’s session with the Dow Jones +1%, S&P 500 +1.7% and NASDAQ +2.4%. US PPI for July largely missed estimates with PPI m/m reading 0.1% (exp. 0.2%), and Core PPI m/m flat (Exp. 0.2%). Looking to the night ahead the headline measure of the July US CPI data is expected to be 0.2% m/m (annual CPI expected at 3.0%), continuing the current pattern of disinflation in the US. This comes after June's modest inflation data, which showed a much-expected slowdown in housing expenses and core goods prices. If this pattern persists, it will support the argument for a rate reduction in September and allow the Fed to turn its gaze towards other issues, such as the weakening labour market. Currently, markets are pricing in nearly 100 bps of interest rate cuts from the Fed by year-end.
EUR
The AUDEUR pair traded relatively sideways over yesterday’s session, opening this morning marginally higher at 0.6035. European equities closed in the green with the DAX +0.5% and CAC +0.3%. A quiet day yesterday for the Eurozone having only seen the ZEW and German ZEW Economic Sentiments both miss expectations. Another relatively unimportant night for the Europeans with only the French Final CPI m/m, Flash Employment Change q/q, Flash GDP q/q and Industrial Production m/m with almost all expected to come in flat from previous readings. Overall, it's a quiet week for the Eurozone. We're still going to see 3 more European Central Bank (ECB) meetings before year-end, with markets currently pricing in about 70 bps worth of cuts.
GBP
Despite seeing a miss in both the UK Claimant Count Change and Average Earnings yesterday, the AUDGBP opens flat at 0.5155. UK equities ticked slightly higher with the FTSE gaining 0.3% on yesterday’s close. Yesterday’s Claimant Count Change had a sizeable miss with 135k people seeking unemployment benefits in the past month, overshooting expectations of 14.5. Wage growth hits its lowest point in two years, reflected in their Average Earnings Index 3m/y dropping 0.1% to read at 4.5 y/y%. Today’s main event comes in the form of their CPI y/y, which is expected to gain 0.3% brining the yearly rate to 2.3%. The weak labour report and tonight's CPI event will provide a clearer picture for the Bank of England (BOE) ahead of the next interest rate decision. Remember, at the start of the month, the central bank executed a tentative cut, with only 5 of 9 Members voting for the move.
NZD
The AUDNZD dropped around 0.3% in anticipation of today’s interest rate announcement, opening this morning lower at 1.0916. No major news yesterday with only the Visitor Arrivals m/m coming in at -0.2% (down from a previous +0.4%). It is anticipated that the RBNZ will initiate an easing of monetary policy at 12pm today by reducing the OCR to 5.25% (-25bps), with futures markets projecting around a 68% chance of a rate cut. The MPC announced this month that they planned to loosen policy guidelines in light of the updated projection that inflation will reach the 1-3% target range by the second half of 2024, although they didn't give explicit guidance on when interest rates would be cut. Economists have also highlighted the risk of monetary policy overshooting has become real. This opinion has been validated by data on labor market conditions, activity, inflation and inflation expectations. Reduced inflation and growth projections are anticipated in the August SoMP, but unemployment and growth projections are probably going to stay low. With approximately 1 in 3 market participants expecting a hold today (approximately 2 in 3 leaning towards a cut), currency volatility is expected regardless of the decision, given a large proportion of people will be incorrect.