FX News

Key Points:

Reserve Bank of Australia raises interest rate to 0.85%
World Bank’s latest Global Economic Prospects report raises chances of stagflation and global growth forecasts slumping from 5.7% in 2021 to 2.9% in 2022- much lower than Jan 2022 forecast of 4.1%
US Natural gas prices dive after reports of an explosion at the Freeport LNG facility near Texas
Yellen on the wires saying there is no way Inflation is a decade long problem
Trump’s tariffs on Chinese goods which are still in place are being reviewed by the Biden administration as a potential method of bringing down rising inflation
ECB keeps benchmark interest rate unchanged and stuck to its plan of ending the stimulus program in the third quarter -a less than hawkish response which dampened the Euro
UK May construction PMI 56.4 vs 56.6 expected
Bank of Japan’s Kuroda- we need to continue to support monetary easing to support any economic recovery
US mortgage applications slumped 6.5% week on week, applications are now at a 22 year low raising questions of a possible US economic recession
The British Pound (GBP) is the strongest currency this week with the Japanese Yen (JPY) the weakest

Volatile conditions in the Euro (EUR), Australian Dollar (AUD) pair this week based on both central banks rate decisions created shifting prices with the EUR the better off, edging ahead of the weekly open at 1.4840 (0.6740) to 1.4900 (0.6710) into early sessions today. The RBA raised their cash rate to 0.85% form 0.35% in a hawkish move, most market participants were expecting a 0.25% shift with this doubling. Comments were made of a potential 50-point rise in the July meeting to curb rising inflation. Meanwhile the European Central Bank did the opposite, keeping their rate on hold for a period of time- rises are predicted to begin post third quarter 2022 when they indicate QE will come to a close. This is contrasted to its central bank peers who have all started to tighten policy to bring inflation under control. The question is how aggressive the ECB will be with rates over the coming months. Our prediction is further upside for the Euro.

AUD/EUR pair this week:
The current interbank midrate is: AUDEUR 0.6699 EURAUD 1.4927
The interbank range this week has been: AUDEUR 0.6697- 0.6778 EURAUD 1.4754- 1.4930

Prices in the British Pound (GBP), Australian Dollar (AUD) cross bounced off long term highs to start the week from 0.5800 (1.7260) ,the GBP well supported to 0.5765 (1.7345) into early Thursday trading. Boris Johnson survived a party vote of no confidence overnight 221 out of 359 votes and will remain in office despite a clear dislike of his recent behaviour. The RBA raised their interest rate from 0.35% to 0.85% Tuesday, the release and statement more hawkish than expected pushing the Aussie higher posts release, but only for a while as equities turned red. Another big hike is predicted a few weeks away for the RBA as they “front load” to try and significantly bring down rising inflation. We predict the rate to go another 50 points in July reaching 1.35%. Next week it’s the Bank of England’s turn to hike rates, with the AUD struggling to hold recent gains amid uncertain market conditions we could see further improvements in the GBP develop.

AUD/GBP pair this week:
The current interbank midrate is: AUDGBP 0.5726 GBPAUD 1.7464
The interbank range this week has been: AUDGBP 0.5723- 0.5790 GBPAUD 1.7270- 1.7473

Markets remain restless with uncertainty continuing to brew in the background around rising inflation and the war in Ukraine. The Australian Dollar (AUD), US Dollar (USD) has remained around recent ranges pivoting off 0.7200 areas for most of the past couple of weeks. The RBA hiked their interest rate to 0.85% form 0.35% a whole 25 points more than markets were widely predicting, sending Aussie buyers into a flurry, and improving the currency on the news to 0.7250. Consensus is that the central bank will raise again another 50 points in their July meeting “front loading” the need to bring down surging inflation. All eyes are on US inflation early Saturday with the month on month expected to rise 0.7% for May, with the year-on-year number remaining at 8.3%- The question being have we seen the peak of inflation? If this is the case overextended commodities may be about to soften along with the Australian Dollar.

AUD/USD pair this week:
The current interbank midrate is: AUDUSD 0.7177
The interbank range this week has been: AUDUSD 0.7156- 0.7245

The Euro (EUR) extended its run higher against the New Zealand Dollar (NZD) Monday to 1.6630 (0.6010) as markets remain spooked by uncertainty in the Ukraine war and rising inflation. The ECB left its benchmark rate unchanged as predicted, sticking to its earlier call to end QE in the third quarter of this year. They won’t start raising their cash rate until after their stimulus ends. This strategy is distancing them from other central banks who have all started to tighten policy. Lagarde said they will maintain optionality, gradualism and flexibility with setting future policy. The bull run in the Euro may continue through to the close of the week with a combination of factors including risk averse markets giving the kiwi a downside bias.

NZD/EUR pair this week:
The current interbank midrate is: NZDEUR 0.6008 EURNZD 1.6644
The interbank range this week has been: NZDEUR 0.6005- 0.6098 EURNZD 1.6397- 1.6651

The British Pound (GBP) has fought back strongly over the week, recovering last week’s losses against the New Zealand Dollar (NZD) to 1.9450 (0.5140) from 1.9150 (0.5220). Boris Johnson survived a vote of no confidence from 211 members from a total of 359 receiving just enough support from his own party to stay in office, except for this excitement the calendar has been rather nude this week. Dairy auction prices rose Wednesday 1.5%, the result stronger than expected following easing of covid restrictions in China. Analysts predict prices to rise further over the coming months with supply restrictions underpinning overall prices. A retest of 0.5100 (1.9620) the previous low looks the pick.

NZD/GBP pair this week:
The current interbank midrate is: NZDGBP 0.5135 GBPNZD 1.9474
The interbank range this week has been: NZDGBP 0.5134- 0.5227 GBPNZD 1.9131- 1.9476

Recession fears in the USA continue to drive poor sentiment across the board with the overall theme of investors buying the safe haven greenback. The New Zealand Dollar (NZD) made solid improvements last week but failed to consolidate around tops of 0.6560 drifting lower over the week to 0.6440 this morning. The Fed’s GDP tracker has recently fuelled more worry around the chances of a recession with the World Bank downgrading the global growth forecasts. The OECD says the increased inflation expectations and the war in Ukraine has made for a chilling growth outlook. We await the US inflation read for May with predictions of a rise of 0.7%. Should the print come in lower markets may draw conclusions that headline inflation may have peaked. It’s hard to see further upside in the kiwi over the short to medium term all things considered- buying the USD on spikes could be the way to go.

NZD/USD pair this week:
The current interbank midrate is: NZDUSD 0.6438
The interbank range this week has been: NZDUSD 0.6422- 0.6535

The Australian Dollar (AUD) has outperformed the New Zealand Dollar (NZD) this week extending its long-term bull run from previous months pushing through key support at 0.9000 (1.1100) reaching 0.8960 (1.1160) today the lowest level in the cross since October 2017. The Reserve Bank of Australia hiked their interest rate 50 points in a surprise move to 0.85% with most predictions of a 25-point move. A hawkish tone from Governor Lowe should keep the pressure on the kiwi for a while especially given the RBA is expected to hike again another 50 points at their July policy meeting. Next week’s Aussie employment figures and NZ growth (GDP) q/q read are the calendar highlights with growth forecast to come in at 3.0% for the first quarter 2022. Trend is your friend they say- buyers of AUD should consider around 0.9000 levels.

NZD/AUD pair this week:
The current interbank midrate is: NZDAUD 0.8965 AUDNZD 1.1143
The interbank range this week has been: NZDAUD 0.8958- 0.9487 AUDNZD 1.1054- 1.1162

Monday 06/06
All Day, NZD, Bank Holiday
All Day, EUR, French Bank Holiday
All Day, EUR, German Bank Holiday

Tuesday 07/06
8am, GBP, Govt. Confidence Vote
8am, AUD, Cash Rate
Forecast: 0.60%
Previous: 0.35%
8am, AUD, RBA Statement

Wednesday 08/06
2am, CAD, Ivey PMI
Forecast: 64.3
Previous: 66.3
2am, USD, Treasury Sec Yellen Speaks Read more