Jobs Market Fuelling Inflation, RBA Warns
AUD
The Australian Dollar opens higher against the majors this morning, strengthened by yesterday’s remarks from RBA Assistant Governor Hunter who stated the labour market remains too strong and is fuelling inflation, reducing hopes of a pre-Christmas interest rate cut from the RBA. Hunter also stated that high interest rates are slowing demand in what is expected to be a mild economic downturn, however, RBA Governor Michele Bullock has still maintained a hawkish outlook reiterating that inflation remains too high and that it is still too soon to consider cuts. Asian equities all closed in red, with the Nikkei -1.5%, Hang Seng -0.7%, and the Shenzhen -0.3%. Locally, the ASX also finished weaker, down -0.3% as financials and energy dragged. Commodities saw a mixed performance with Gold -0.1%, Silver +0.3%, Iron Ore flat, and Copper +1.7%. No major news today locally with only the Melbourne Institute Inflation Expectations set for release at 11am. We may see the release of New Loans and M2 money Supply y/y out of China, with not set release time given. Saturday's Industrial Production and Retail Sales figures from China will be the next major data points for the AUD.
USD
The AUDUSD took a 0.7% dive to 0.6622 overnight off the back of stronger-than-expected US inflation data, with the pair recovering in the aftermath to open this morning at 0.6678. Core CPI (which excludes volatile food and energy prices) picked up +0.3% month-on-month, higher than 0.2% expectations and adding to the case for a 25bps cut from the Fed next week, as opposed to a 50bps cut. Wall Street closed in the green with the Dow Jones +0.3%, S&P 500 +1.1%, and the NASDAQ +2.2%. It will be another busy night ahead for the US with multiple releases, seeing as though the issue with whether the Fed will cut rates is virtually settled, tonight’s PPI (a measure used as a proxy for costs at the wholesale level) release at 10:30pm is set to increase +0.1% in line with the previous month. We will also see the weekly Unemployment Claims set to remain the same at 227K, and 30-y Bond Auction early Friday morning.
EUR
The AUDEUR opens at weekly highs of 0.6065 with the Euro weakening ahead of this evening's European Central Bank interest rate decision. Eurozone equities closed mixed with the DAX +0.4%, and the CAC -0.1%. Big day ahead for the Eurozone with the ECB to announces its policy decision, with markets pricing in a 25-basis point cut moving from 4.25% to 4.00%. Despite ongoing concerns within the ECB on wages growth and services price inflation, signs of weakness in growth in Q3 should be enough to convince the central bank that the degree of policy restriction can be reduced further. However, there is unlikely to be any guidance on future policy decisions, with data dependence likely to be emphasised. As highlighted in the ECB’s July meeting minutes, the bank must manage a difficult balancing act of keeping policy sufficiently tight to bring inflation down to target in a timely manner, while reducing rates enough to support a recovery in growth in the economy.
GBP
The AUDGBP regains its 0.51 handle, opening higher this morning at 0.5117, shooting up late yesterday afternoon on the back of softer-than-expected UL data. GDP m/m printed flat from the forecasted +0.2%, having shown no grown in July after also showing no growth in June. Earlier this morning the UK also had the RICS House Price Balance which did outperform coming in at 1%, from the forecast -14%. No further news out of the UK today.
NZD
The AUDNZD coupling opens higher this morning at 1.0883 after its gradual rise yesterday, jumping about 0.60%, even after yesterday's NZD Visitor Arrivals m/m saw a big increase from the previous month of 0.5% to 2.2%. Earlier this morning we saw their FPI m/m come through lower than previous at 0.2% from the previous months 0.4%. No further news today from our Kiwi neighbours, however, tomorrow we will see their Business NZ Manufacturing Index at 8:30am.