Hawkish Fed Repricing Causes AUD Retreat
AUD
The Aussie Dollar retreats from its highs as global fears rise and the long-term effects of the Iran conflict become clearer. Asian equities closed lower on Friday as U.S. yields moved 4bps higher across the curve. The Kospi closed -6.1%, the Nikkei -2.0%, the Hang Seng -1.6% and the Shenzhen -1.1%. Locally the ASX fared better, down -0.1% as materials closed -2.9%. No economic news out locally, but China will be releasing key April activity data today. Industrial Production y/y is expected to rise to 6% from 5.7%, supported by the AI driven export boom. Consumption is likely to remain tepid, with Retail Sales expected to grow about 2.0% y/y on a lower base. Weakness in durables remains a major drag: according to the CPCA, passenger car retail sales fell 22% y/y in April, versus a 15% y/y decline in March. Looking ahead, the next major data point for the Aussie will be on Thursday with the Unemployment Rate and Employment Change data set for release.
USD
The AUDUSD takes a tumble to start the week, with the pair dropping off over the weekend to open at a rate of 0.7151. A soft end to the week on Wall St. saw the Nasdaq close -1.5%, the S&P 500 -1.4%, and the Dow Jones -1.1%. U.S.10-year yields rose 12bps to 4.6%, while Brent Crude rose 3.6% to $109.50 a barrel. U.S. Empire Manufacturing for May printed at 19.6, up from 11.0 and higher than forecasts of 7.2. U.S. Industrial Production for April was +0.7%, up from -0.3% and surpassed forecasts of +0.3%. It was a positive end to the talks in China, with President Trump praising Xi, saying that Xi was “an incredible guy” and that he had a great stay. Looking forward, G7 meetings are set to begin today, which could add global pressure to mounting Middle-Eastern pressures.
EUR
The AUDEUR opens the week lower, with the pair sliding over Friday and the weekend, opening this morning at a rate of 0.6152. European equities were red into the close, with the DAX down -2.1%, and CAC down -1.6%. The ECB’s Economic Bulletin released on Friday and highlighted that while interest rates remain unchanged and medium-term inflation expectations are firmly anchored at 2%, intensifying geopolitical conflicts in the Middle East have driven up energy prices, significantly boosting short-term inflation risks while simultaneously weighing on Eurozone economic growth. Tonight, will see the Italian Trade Balance, expected to rise to 5.25B from 4.94B.
GBP
The AUDGBP sees a small decline since Friday’s open, with the pair dropping on Friday’s session, keeping natural over the weekend to open this morning at 0.5367. British equities didn’t fare well, with the FTSE closing down -1.7%. It was a quiet end to the week for the brits, with this morning having the Rightmove HPI m/m read higher at 1.2%, previously at 0.8%. MPC Member Greene and Mann will be speaking tonight, with markets closely listening to any hints given away about their view of future economic policy.
NZD
The AUDNZD sees marginal gains into the close, pushing to another fresh 13-year high, opening this morning at 1.2240. It was a quiet end to the week, with this morning having BusinessNZ Services Index reading 48.9, previously 46.2. Early tomorrow morning will have NZ’s PPI Input and Output q/q, both expecting to rise.