Will RBNZ Raise Rates Today Despite Fresh Covid Case?

AUD

The AUD was down across most major currency pairs overnight as downbeat risk sentiment soured appetite for Aussie dollar. The Antipodean currencies made headlines yesterday with the Aussie Dollar weakening after the RBA Minutes showed that the Covid shutdowns led the Central Bank to consider reversing the recent decision to taper the bond buying program. Local Equities performed poorly yesterday with the Shanghai Comp posting significant losses of -2%, Nikkei was down -0.4% and the ASX posted a loss of -0.9%. Commodities were mixed with Gold and Silver up 0.1% while Iron Ore was down -0.7%. To the data, Australia’s Q2 wage data is due out today however this is likely to be largely ignored by the markets as they aim their focus toward the RBNZ’s policy decision at midday today, which is likely to spark another day of high drama for the antipodean currencies, the AUD likely to be dragged along by movements in little brother. The RBNZ seemed to be heading toward an imminent rate hike, however this was before the NZ reported their first covid case yesterday. (See full details in NZD section below).

USD

The AUDUSD pair lost significant ground overnight, trading at fresh 10-month lows, offering a rate of 0.7253 this morning. Negative risk sentiment hit markets overnight, driven by fresh doubts of the global economic recovery. Equity markets were impacted heavily with the Nasdaq down -1% and both the S&P 500 and the Dow Jones down -0.9%. US interest rates were flat with the 10-year note returning 1.26%, while oil edged marginally lower to $66.60 a barrel. In some early data in the US, Retail Sales for July were much weaker than expected with the headline result a 1.1% decline, down from +0.7% and below expectations of -0.3%. The USD shrugged off this weak data and continued to make ground with risk aversion driving the USD demand. On the docket this evening the US will release the FOMC meeting minutes for July, the minutes could provide more insight into various participant timelines for eventual tapering in asset purchases.

EUR

The AUDEUR lost out in the overnight session, making significant losses to trade at a rate of 0.6197 at the time of writing. European Equities were relatively subdued with the CAC making a loss of -0.3% while the DAX made no movement of 0%. In the Eurozone, data released yesterday saw the economy growing 13.6% in Q2 YoY, just missing expectations of 13.7%, and an increasing 2% QoQ in line with expectations. Employment improved in the Eurozone in the second quarter, up 0.5% following a 0.2% drop in the first quarter. To the data this evening the Eurozone release the Final CPI & Core CPI (Consumer inflation) data for YoY.

GBP

The AUDGBP followed suit to make a loss overnight, trading at a rate of 0.5280 at the time of writing. The London benchmark FTSE 100 posted modest losses of -0.25%. In early UK data, the unemployment rate has dipped to 4.7% between April and June from 4.8% previously, better than anticipated. Data for July showed the number of job vacancies passed 1m for the first time on record in the UK. Furthermore, the average weekly pay growth in the UK jumped 8.8% from 7.4%, the highest increase since the series began in 2001. It’s reported a further 26,852 confirmed Covid cases on Tuesday and that a further 170 people have died in a 24hr period, according to official data, the highest number of daily deaths since 12th March. Daily deaths have been sitting around 50-70 per day for a while now, so yesterday's increase will be monitored closely. To the data this evening the UK is due to release the CPI and PPI index YoY.

NZD

The AUDNZD bucked the trend, making a slight gain to trade at 1.04780 this morning after a covid case was declared in Auckland with the country later reporting that they’d enter a snap lockdown. NZ PM Ardern telling an NZ radio program that there were an additional 4 confirmed cases of covid. Contact tracers are working frantically to finds and squash the source of the infection. It's worth noting that NZ has relatively low vaccination rates, so if the situation turns into one of prolonged lockdown until vax rates are acceptable for lower restriction settings (a la Sydney), there is a prospect of a long road ahead of economic downturn. The timing of this is unfortunate, with the Reserve Bank of New Zealand’s policy decision due today at midday. With what will be a difficult decision for the central bank, markets are now offering a 50/50 chance of a rate hike (prior to yesterday's covid case, markets were much more certain the interest rate would go up today). Volatility around midday is likely.