AUD Slips as Geopolitical Risks and Inflation Fears Swirl
AUD
The Aussie Dollar sinks from rising risk as the middle-eastern conflict pushes into new levels of escalation. Asian equites finished stronger yesterday, the Nikkei +2.9%, Hang Seng +0.6% and Shenzhen +0.5%. Locally the ASX 200 ended +0.3% as technology and utilities sectors led the pack at +1.6% and +0.9% respectively. Yesterday saw the CB Leading Index m/m read 0.2%, it was previously 0.3%. Later this morning will have the Australian Employment Report to be released, with the Unemployment Rate expected to remain at 4.1% and Employment Change to increase by 20.8k (17.8k previously). If realised, the unemployment rate will likely undershoot the RBA’s forecast for Q1 (4.25%). Given the release is for February (prior to the Iran War) and is out after the RBA meeting, it is unlikely to be market-moving.
USD
The AUDUSD drops overnight, opening this morning at a rate of 0.7027 following the Fed's decision to hold interest rates and commentary following after. Wall St. traded lower following the rate decision with the Dow Jones -1.6%, the Nasdaq -1.4%, and the S&P 500 -1.3%. US PPI for February printed at +0.7% MoM and +3.4% YoY, higher than expectations of +0.3% and 3.0% with core measures also all higher than expected. The FOMC left rates on hold as widely expected in an 11-1 vote. The updated dot plot maintained the view of one rate cut in 2026 and another cut in 2027 while the SEP showed modest increases to GDP in 2026 and 2027 though inflation was much higher in 2026 with the statement noting that the “implications of Middle East developments are uncertain”. Little reaction to the data with markets more focused on an apparent escalation in the Middle East with Iranian gas fields and facilities targeted by Israel. Iran quickly promised retaliation with the IRGC issuing evacuation warnings for energy facilities across the Persian Gulf which they declared were “legitimate targets”. Tonight will see US Unemployment Claims which are looking to remain largely unchanged at 215k and Philly Fed Manufacturing Index which is forecasted at 8.3 (previously 16.3).
EUR
The AUDEUR opens the day lower, with the pair pushing below the 0.6150 barrier, opening this morning at a rate pf 0.6132. European equities closed the day in the red, with the DAX down 1% and the CAC down 0.1%. Final CPI y/y figures were released last night, coming in as expected unchanged at 1.9%. The final figure also printed as expected at 2.4%. Tonight will see their Main Refinancing Rate which is widely expected to remain at 2.15%, but the following commentary may be of note to see if the ECB has any concerns about transitory inflationary factors with the escalating war forcing further energy restrictions.
GBP
The AUDGBP softened since yesterday, with the pair briefly dropping it’s newly acquired 0.53 handle overnight, opening this morning at a rate of 0.5300. British equities closed down for the day, with the FTSE coming in at -0.9%. There was no news out last night, with The Bank of England is widely expected to keep the Bank Rate unchanged at 3.75% tonight. While the MPC kept the door open to further monetary policy easing in February (following a vote of 5-4 to stay on hold), risks to inflation are now to the upside with energy prices higher as a result of the Iran conflict. Markets will likely pay close attention to the degree of concern about inflation persistence, with one rate hike largely priced in by early 2027.
NZD
The AUDNZD opens the day flat with the pair keeping at it’s recently acquired highs, opening this morning at a rate of 1.2141. This morning the New Zealand GDP q/q released at 0.2%, lower than the expected 0.5% and much lower than the previous 0.9% which was largely led by growth in the rental/real estate sector. This is very stagnant growth from NZ, showing further proof of a weakening economy.