ECB Signals Near-Term Rate Cuts
AUD
The AUD opens higher against some major currencies, flat against others, having made small advances in yesterday’s session despite weaker-than-expected Chinese inflation data and relatively poor commodity performance. The ASX closed -0.4% lower with property dragging on the index while materials and energy stocks outperformed. Asian equities were also lower with the Nikkei down -0.4% and Hang Seng -0.2%. Iron Ore and Copper each gave up -0.5%. China’s consumer prices barely increased from a year earlier, with CPI y/y printing at +0.1% yesterday (exp. +0.4%, prev. +0.7%), underscoring the deflationary pressures that remain a significant threat to China’s economic recovery. Economists expect China’s monetary policy to remain loose, with the housing market slump showing no signs of a turnaround & consumer spending looking unlikely to contribute all that much to Beijing’s ambitious 5% economic growth target in 2024. Currently, the Aussie Dollar is at the whim of the markets, with no major domestic data releases ahead of next Thursday’s Unemployment Rate and Employment Change. Over the next few days, we may see the tentative release of Chinese New Loans data.
USD
AUDUSD opens at 0.6537, having made small but steady advances in yesterday’s session after falling nearly 2% off the back of Wednesday evening’s hot Consumer Price Inflation (CPI) print. Tame Producer Price Inflation (PPI) overnight has somewhat-soothed renewed inflation concerns, with the headline figure at +0.2% m/m after the rising cost of services was softened by a fall in goods prices. The Core PPI figure also landed at +0.2%, with the previous figure at +0.3%. Overall, higher inflation and persistent labour market strength have prompted financial markets and most economists to delay expectations for an initial Fed interest rate cut to September, from June. Yesterday’s FOMC Meeting Minutes also showed central bankers are concerned that progress with inflation may have stalled. As a result, the US Dollar Index (DXY) remains near the highest level since November 2023. Wall St. rebounded on the PPI news, with the Nasdaq trading +1.7%, S&P 500 +0.7% and Dow flat. Tonight, we’ll get a glimpse of consumers’ gauge on current and future economic conditions, with Preliminary UoM Consumer Sentiment & Inflation Expectations set for release in the late hours.
EUR
AUDEUR has reclaimed ground overnight, climbing from 0.6054 lows in yesterday’s session to this morning’s open at 0.6098. This comes after the European Central Bank gave a strong indication that interest rate cuts are on the way for the Eurozone. After holding the key interest rate at 4.5% for the 5th consecutive meeting, the Monetary Policy Statement indicated “it would be appropriate to reduce the current level of monetary policy restriction” if inflation continues to move towards its 2% target. ECB President Lagarde also stated “We are not assuming that what happens in the euro area will be the mirror of what happens in the United States”, after the recent hot US inflation print spurred uncertainty surrounding future Fed monetary policy. Market pricing still suggests a 25-bps cut from the ECB in June. Tonight, we’ll see low-tier French & German Final CPI data.
GBP
After spending the majority of yesterday’s session sub-0.52, AUDGBP has reclaimed the handle this morning to open at 0.5207. The FTSE fell -0.5%. Last night, Bank of England Member Greene indicated the central bank sees signs of the UK exiting recessionary territory soon. He also noted they see inflation continuing to come down, although easing monetary policy too early increases the risk of future tightening. This afternoon, we’ll get a look at their quarterly GDP figure, expected at +0.1% after last month’s +0.2% bump.
NZD
Little movement from the AUDNZD pair over the past 24h, having briefly touched 1.0909 in the early hours ahead of this morning's open at 1.0894. The BusinessNZ Manufacturing Index landed at 47.1 this morning, reflecting further weakness in the Kiwi manufacturing sector. We'll see the Services Index on Monday morning.