AUD Rebounds as US Weakens on Fed Independence Concerns
AUD
The Australian Dollar opened up against most majors after the U.S. Department of Justice threatened to indict Federal Reserve Chair Jerome Powell. Yesterday’s local data releases showed a slight decline of -1.5% in ANZ Job Advertisements and a 1.4% increase in monthly Household Spending. However, given the nature of these releases, there was little impact on currency markets. A positive start to the week for Asian equities saw the Nikkei trade +1.6%, Hang Seng +1.4%, and Shenzhen +0.7%. Locally, the ASX 200 finished higher by +0.5% as consumer discretionary and consumer staples sectors led gains of +2.1% and +1.1% respectively. Looking at commodities, the biggest movers were natural gas (+7.4%) and oil (+2.0%). The week ahead shows a series of low-impact data releases from Australia and China that are expected to be relatively quiet for the markets. We have Westpac Consumer Sentiment and Chinese credit data out today, followed by Chinese Trade Balance figures on Wednesday and Australian Inflation Expectations on Thursday.
USD
AUD/USD opens higher this morning by about 25 basis points at 0.6713. Wall St. traded marginally higher overnight despite the negative sentiment driven by the DoJ serving subpoenas on Fed Chair Jerome Powell. The Nasdaq overcame early weakness to trade +0.4% late in the session, while the S&P 500 and the Dow Jones were trading +0.2% and +0.1% respectively. The main news out of the States was the escalation in tensions between the Federal Reserve and the White House. This move came after Chair Jerome Powell publicly disclosed that the Department of Justice had issued subpoenas and threatened a criminal indictment regarding his previous testimony on the Fed’s headquarters renovation. Powell characterized the investigation as a "pretext" to pressure the central bank into cutting interest rates, a move that has reignited serious concerns regarding the Fed's future independence. Coming out in support of Powell, a group of former Fed Chairs, Treasury officials, and economic advisers from both sides of politics issued a statement saying that the action resembled tactics of “emerging markets with weak institutions.” This comes immediately before the December CPI release tonight, where a forecasted 2.7% inflation rate will be scrutinized under this new lens of political pressure. Market participants should expect significant volatility as the USD balances these institutional risks against the reality of the inflation trajectory.
EUR
AUD/EUR opens slightly up at 0.5751. Following a relatively quiet start to the week for EU data, the Sentix Investor Confidence index for Europe reported a reading of -1.8, which significantly outperformed the forecast of -5.1 and showed improvement from the previous figure of -6.2. European equities saw the DAX rise +0.6%, while the CAC was flat. Looking ahead, we are set for an abundance of lower-tier data, including German WPI, French CPI, and the Eurozone trade balance. Any movements in the exchange rate are likely to be driven by changes to global risk sentiment.
GBP
AUD/GBP also opens slightly higher at 0.4984 after no data was released overnight. Following the general trend, there is little key data out this week that could swing currency markets. Overnight, we saw the FTSE open up 0.2%. Today, BoE Governor Bailey is set to speak at the Bellagio Group Meeting in London. Later in the week, we have GDP m/m figures, which are expected to print at 0.1%, up from last month’s -0.1%. Aside from that, there remains a flurry of lower-tier data coming out over the week.
NZD
AUD/NZD opens down by about 0.4% at 1.1622 despite no data out overnight. This morning we had NZIER Business Confidence come out at 48 up from 18. Tomorrow we are set to see Building consents m/m which previously came out at -0.9% as well as ANZ Commodity Prices, which are also out a little later tomorrow.