Key Points:
Overnight risk mood dims with the US Dollar bouncing back.
Following the RBA hike of 25 points Tuesday to 3.35% Lowe expects a further 2 interest rate rises in the coming months.
Bank of England’s Bailey expects inflation to come down fast this year, but further rate hikes are on the agenda.
The Bank of England hiked interest rates 50 points to 4.0% with the voting 7-2 in favour and the central bank indicating inflation has turned. Read more
After a decent fall from 0.7150 late last week in the Australian Dollar (AUD), US Dollar (USD) pair we have seen price move off an early week 0.6850 mark to push towards 0.7000 where it has met resistance overnight. Risk waned and equity markets posted losses taking the Aussie back to 0.6940 as I write. Building Permits were up in December compared to November but helping the AUD higher but overall sentiment was the difference. Tuesday’s RBA policy meeting also pushed the currency higher for a while after the RBA hiked interest rates from 3.10% to 3.25% signalling further interest rate grief was to come. Earlier forecasts had priced in just one more rise of 25 points, but now the cap looks to have shifted from 3.6% to 3.85%. The central bank also said they predicted inflation to slip from the current 7.8% to 4.75% by the end of 2023. We expect to see further upside in the cross, but first getting through solid resistance at 0.7150 will be tough. Next week’s Australian jobs numbers and US Inflation are the key releases.
The current interbank midrate is: AUDUSD 0.6935
The interbank range this week has been: AUDUSD 0.6854- 0.7010
Choppy moves this week in the New Zealand Dollar (NZD), US Dollar (USD) cross ensured a reasonably directionless week of action with pair trading around the weekly open of 0.6330 this morning. Attempts to push through 0.6400 resistance failed overnight with risk sentiment waning and the kiwi falling back. US bond yields are being closely watched as the 2 year and 10 year diverging to a 45 year range represents a tightening market and an early view of a potential recession. Recent Fed expectations of just one further hike to interest rates looks unlikely as two further increases look possible. Powell did however say deflationary signs are starting to appear with moderate growth predicted for 2023. We are not yet ready to shift our view to bearish just yet. Movement however through 0.6220 may change this. A bounce to 1.0960 in overnight trading suggests the recent move towards 0.9000 (1.11) ran out of steam, however we still support the cross tracking lower.
The current interbank midrate is: NZDUSD 0.6324
The interbank range this week has been: NZDUSD 0.6269- 0.6388
The steady long term bear momentum in the Australian Dollar (AUD), New Zealand Dollar (NZD) has continued well into 2023 with price reaching 0.9065 (1.1030) Thursday a late October 2022 low from 0.9550 (1.0470) mid-December. Lower highs followed by lower lows have been the trend of late with recent Aussie strength stemming from a 25-point hike to the RBA interest rate taking it to 3.35%, the eighth straight monetary policy hike since May last year. Reviewed expectations of inflation see it coming off 7.8% all the way down to 4.75% this year and to around 3% by mid-2025. We may see the current momentum stall out towards 0.9000 (1.1000) but fundamentally long term we could be pricing in the high 80’s
The current interbank midrate is: NZDAUD 0.9123 AUDNZD 1.0956
The interbank range this week has been: NZDAUD 0.9067- 0.9175 AUDNZD 1.0898- 1.1029
The Australian Dollar (AUD) has outperformed this week across the main board of currencies and against the British Pound (GBP) coming from 0.5620 (1.7800) at the weekly open extending to 0.5775 (1.7315) Wednesday. Aussie inflation data came in hot at 7.8% y/y ending December 2022 compared to 7.3% predicted highlighting the RBA still has a way to go to tame the beast. Hikes of 25 points at the next policy meetings in February and March looks to be the preferred solution. First we have the Bank of England policy meeting next week with markets predicting a 45-point hike. The AUD should remain well supported through to next week’s decision.
The current interbank midrate is: AUDGBP 0.5726 GBPAUD 1.7464
The interbank range this week has been: AUDGBP 0.5614- 0.5775 GBPAUD 1.7315- 1.7810
The English Pound (GBP) continued its run lower extending off last week’s 0.5155 (1.9400) level reaching 0.5290 (1.8900) Wednesday against the New Zealand Dollar (NZD) after PMI reads were soft and budget deficits were terrible. This area is the top of a recent range going back to late September last year. However, the GBP reversed most of the losses heading into Thursday with NZ CPI releasing bang on expectations at 7.2% y/y taking price back to 0.5230 (1.9130). With CPI printing as expected for the fourth quarter this should keep the door open for further interest rate hikes over the next few months to a peak of 5.25%. Looking ahead we have NZ job’s report and Bank of England Monetary Policy report next week.
The current interbank midrate is: NZDGBP 0.5222 GBPNZD 1.9149
The interbank range this week has been: NZDGBP 0.5207- 0.5291 GBPNZD 1.8897- 1.9202
NZ Inflation rose slightly more than was expected in the last quarter of 2022- 1.4% vs expectation of 1.3%, taking the year to date in December to 7.2%. Stubborn CPI will mean the RBNZ should hike their cash rate 50 points in the February meeting taking it to 4.95% the highest since December 2008. The New Zealand Dollar (NZD) was moderately higher on the news reaching 0.6525 as it targeted the June 2022 high of 0.6540. Friday’s key US PCE Price index data a good measure of inflation should cement what the Fed do next, possibly confirming the threat that inflation is easing. Will we see the Fed push back on their predicted 50-point rise – this is clearly the biggest event risk on the calendar next week. A retest of 0.6600 is probable.
The current interbank midrate is: NZDUSD 0.6477
The interbank range this week has been: NZDUSD 0.6435- 0.6524
Key Points:
Action midweek has been of a risk off nature with equity markets under pressure and
the greenback recovering
The Bank of Canada hiked their interest rate 25 points to 4.5% saying they may hold
fire a while they rethink the state of the current economy
Australian 4th Quarter inflation came in hot at 1.9% taking the year-on-year number
to 7.8% up from 7.3% Read more
Monday 23/01
All Day, CNY, Bank Holiday
Tuesday 24/01
All Day, CNY, Bank Holiday
10:30pm, GBP, Flash Manufacturing PMI
Forecast: 45.4
Previous: 45.3
10:30pm, GBP, Flash Services PMI
Forecast: 49.6
Previous: 49.9
Wednesday 25/01
3:45am, USD, Flash Services PMI
Forecast: 45
Previous: 44.7
10:45am, NZD, CPI q/q
Forecast: 1.60%
Previous: 1.80%
1:30pm, AUD, Trimmed Mean CPI q/q
Forecast: 1.60%
Previous: 1.80% Read more
Tuesday 17/01
All Day, USD, Bank Holiday
4am, GBP, BOE Gov Bailey Speaks
3:00pm, CNY, GDP q/y
Forecast: 1.60%
Previous: 3.90%
8:00pm, GBP, Claimant Count Change
Forecast: 19.8K
Previous: 30.5K
Wednesday 18/01
2:30am, CAD, CPI m/m
Forecast: -0.60%
Previous: 0.10%
2:30am, CAD, Median CPI y/y
Forecast: 4.90%
Previous: 5.00%
2:30am, CAD, Trimmed CPI y/y
Forecast: 5.20%
Previous: 5.30%
2:30am, USD, Empire State Manufacturing Index
Forecast: -8.7
Previous: -11.2
Tentative, JPY, BOJ Outlook Report
Tentative, JPY, Monetary Policy Statement
Tentative, JPY, BOJ Press Conference
8:00pm, GBP, CPI y/y
Forecast: 10.50%
Previous: 10.70% Read more