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Tuesday May 16
12:30am USD Empire State Manufacturing Index
Forecast: -3.7
Previous: 10.8
1:30pm AUD Monetary Policy Meeting Minutes
6:00pm GBP Claimant Count Change
Forecast: 31.2K
Previous: 28.2K
6:00pm GBP Average Earnings Index 3m/y
Forecast: 5.80%
Previous: 5.90%
6:00pm 9:00pm EUR German ZEW Economic Sentiment
Forecast: -5.4
Previous: 4.1

Wednesday May 17
12:30am CAD CPI m/m
Forecast: 0.50%
Previous: 0.50%
12:30am CAD Median CPI y/y
Forecast: 4.30%
Previous: 4.60%
12:30am CAD Trimmed CPI y/y
Forecast: 4.10%
Previous: 4.40%
12:30am CAD Common CPI y/y
Forecast: 5.50%
Previous: 5.90%
12:30am USD Core Retail Sales m/m
Forecast: 0.50%
Previous: -0.80%
12:30am USD Retail Sales m/m
Forecast: 0.80%
Previous: -1.00%
2:00am EUR ECB President Lagarde Speaks
1:30pm AUD Wage Price Index q/q
Forecast: 0.90%
Previous: 0.80%
9:50pm GBP BOE Gov Bailey Speaks Read more

The Australian Dollar (AUD) bounced off 0.6800 resistance late yesterday against the US Dollar (USD) falling back to 0.6700 in early morning trading. Risk dived as equity markets all recorded losses, the Aussie running into selling pressures. Dropping metal prices and weak Chinese data hasn’t helped. US CPI printed at 4.9% compared to 5.0% expected almost cementing chances the Federal Reserve won’t hike rates again in this cycle. This is the lowest inflation read since April 2021. Will disinflation continue is the question with around 70 points of rate cuts priced in this year’s forecast. Setbacks to 0.6570 will be well supported in the long term along with action above 0.6800 looking difficult. US Retail Sales prints next week, our focus on the economic docket.

The current interbank midrate is: AUDUSD 0.6699
The interbank range this week has been: AUDUSD 0.6687- 0.6817

The Bank of England monetary policy report revealed a hike to 4.50% overnight, the central bank hiking 25 points as widely predicted the 12th consecutive time the central bank has raised. It was a less dovish report from members who predict a better forecast ahead for the UK economy. Bank of England’s Bailey said future rate moves were confidential with no hints as to future directional steer. The bank expects the economy to grow nearly 1% through to the second quarter 2026- it’s not a strong forecast but it’s less weak. Not a lot of movement in the cross post the rate decision, the pair pivoting around 0.5045 (1.9820) areas.

The current interbank midrate is: NZDGBP 0.5033 GBPNZD 1.9868
The interbank range this week has been: NZDGBP 0.4983- 0.5053 GBPNZD 1.9788- 2.0065

The New Zealand Dollar (NZD) made it through to 0.6800 last night the highest level since early February but was unable to hold here falling back against the US Dollar (USD) to 0.6300 this morning as equity prices closed lower. The odds of the Federal Reserve hiking their interest rate now is basically nil which has pushed up the greenback. US CPI for April showed 4.9% year on year pretty much creating a pause to rates a sure thing. This marks the lowest inflation since April 2021 printing below expectation of 5.0%. With forecasting of around 70 points of cuts to take place this year, this may be too much based on a cooling labour market. Also of consideration is the return of the Chinese market post Covid and the upturn of commodity prices which could send equity markets souring. This in turn means that interest rates would stay higher for longer. This would also support the greenback. Next week’s NZ annual “Wellbeing” Budget should move the kiwi.

The current interbank midrate is: NZDUSD 0.6295
The interbank range this week has been: NZDUSD 0.6288- 0.6383

The British Pound (GBP) has continued to lose ground over the week reaching 1.8590 (0.5380) before stabilising around 1.8650 (0.5360) prior to the Bank of England (BoE) rate decision. The Bank of England hiked their interest rate as predicted to 4.50%, the 12th consecutive time the central bank has raised going back to December 2021. It was a less dovish report from members who predict a better forecast ahead for the UK economy with the governor suggesting they are more confident of being able to get inflation back down to its 2.0% target. The bank suggested they may be nearing the end of their tightening cycle; we predict just one further hike before holding into 2024. This mostly depends on a tighter labour market and stronger business activity. A break below 0.5420 (1.8440) would suggest a reversal of the bear trend at play.

The current interbank midrate is: AUDGBP 0.5356 GBPAUD 1.8670
The interbank range this week has been: AUDGBP 0.5340- 0.5380 GBPAUD 1.8587- 1.8724

The New Zealand Dollar (NZD) has continued to track higher to 0.9400 (1.0640) style levels against the Australian Dollar (AUD) into Friday. It’s been met with heavy resistance at the 0.9430 (1.0600) area on the chart the high of December 2022. A nudge through here would set up an argument for a retest to 0.9540 (1.0480) carrying on the bull run from 0.9150 (1.0930). The technical indicators are supportive of such a move, especially if the Aussie is held back by softening metal prices and fragile Chinese data. Looking ahead we have Australian Dollar employment data next week.

The current interbank midrate is: NZDAUD 0.9394 AUDNZD 1.0637
The interbank range this week has been: NZDAUD 0.9313- 0.9432 AUDNZD 1.0602- 1.0737

Key Points:

US Dollar index falls on US CPI release.
NZ April Manufacturing PMI 49.1 vs 48.1 predicted.
Bank of England member Saunders has suggested that the April BoE inflation figure will undershoot the bank’s forecast by quite a chunk.
The Australian labour government released its annual budget showing a surplus, the first in 15 years as strong labour growth and mining profits surged. The surplus of AUD 4.2B to June 2023 the first since 2008 financial year and a switch up from the forecast of AUD 37B forecast last October.
Finance Minister Robertson says govt spending is now around 30% of GDP and that the govt fiscal position is strong.
US Federal Budget surplus 176B compared to 235B predicted.
ECB’s Lagarde says they have more to do in the fight against inflation with upside risks significant. ECB’s Nagel saying – we are not done yet with core inflation still too high.
ECB’s Guindos suggests inflation will fall and the eurozone should expect growth in the first and second quarters of 2023.
The New Zealand Dollar (NZD) has been the best performer this week while the Euro (EUR) has been the worst performing currency.

Market Overview

• Currencies recovered Monday against the greenback and stocks have been well supported.
• Markets are pricing a less aggressive Fed policy going forward.
• The ECB are planning sanctions against Chinese companies who are supporting the war in Ukraine.
• NAB Business confidence came in better than expected at 0 vs -1 suggesting April’s outlook was balanced.
• Crude oil settles at 73.00 after being down around 63.00 in early May.
• ECB’s Lane said there is still a lot of inflation momentum.
• Chinese exports rose in April but at a slower pace based on unfulfilled orders a by-product of last year’s covid disruptions.
• German Industrial Production is well down in March -3.4% compared to 2.0% previously and -1.3% expected. Poor automotive performances are mostly to blame.
• The New Zealand Dollar (NZD) has been the best performer this month while the US Dollar (USD) has been the worst performing. Read more

Risk mood improved Monday extending the Australian Dollar (AUD) through to a 6-week high against the Euro (EUR) to 0.6160 (1.6230) where it sits currently. Recent German factory orders came in poor following the Retail Sales disappointment. The Euro was also sold off post the ECB rate release unusually after Lagarde hiked their interest rate from 3.50% to 3.75%- Lagarde saying they are nearly there but hasn’t ruled out further hikes. Nuda to publish this week on the docket. We expect the cross to pivot around 0.6165 (1.6220) levels over the week.

Current Level: 0.6164 (1.6223)
Resistance: 0.6235 (1.6450)
Support: 0.6080 (1.6040)
Last Weeks Range: 0.6000-0.6131 (1.6310-1.6668)

The Australian Dollar (AUD) has extended gains off Monday’s open against the British Pound (GBP) clawing back last week’s losses to trade back around 0.5375 (1.8600) this morning. However, sentiment towards the Bank of England (BoE) outpacing other central banks and particularly the Bank of Australia with more hikes on the horizon over the following months including the outlook for a 60 point shift at Septembers meeting following a 25 point rise this Thursday from 4.25% to 4.50% could see the Pound reverse higher in a heartbeat. Could it be that this aggressive approach has markets in a spin with a lot of recent topside movement in the GBP unjustified?. UK GDP is predicted to come in at 0.0 later in the week. Setbacks in the GBP should be well supported for now.

Current Level: 0.5375 (1.8604)
Resistance: 0.5435 (1.9000)
Support: 0.5265 (1.8400)
Last Weeks Range: 0.5259-0.5375 (1.8604-1.9013)