AUD Weakens as US Retaliation Rattles Markets

AUD

The Australian Dollar opens lower across the board following Trump’s Iran retaliation threat which has driven investors toward safer assets. Yesterday, June Westpac Consumer Confidence fell 2.9% m/m and NAB Business Confidence for May came in at -14. Households reported ongoing strain from elevated living costs, while a temporary fuel tax cut offered only limited and short-lived relief. Against this backdrop, investors are turning their attention to the upcoming policy decision from the Reserve Bank of Australia next week, where rates are widely expected to be held steady. Asian equities were mixed in trade yesterday with the Nikkei at +2.2%, Shenzhen +1.9% and the Hang Seng -0.4%. Locally the ASX 200 ended -0.25%, as materials and technology sectors underperformed. Nothing set for release locally, however In China, inflation data for May will be released today. Forecasts suggest that China's Producer Price Index is set to rise 3.9% y/y in May on a low base. Sequentially, they expect PPI to increase by around 0.7% m/m, after a 1.7% rise in April.

USD

AUDUSD opens lower this morning and remains at a 2-month low of 0.7023 after President Trump took to social media to confirm that Iran had shot down a US helicopter in the Strait of Hormuz. The US responded with further strikes on Iran earlier this morning in retaliation which, strengthened the USD as risk sentiment soured as a result. Wall St was mixed in its close with the Nasdaq trading -1%, the S&P 500 -.4%, and the Dow Jones +.2%. US Consumer Price Index for May will be published later tonight. Headline CPI is expected to moderate but remain elevated at +0.6% m/m, while core inflation is projected to ease to +0.3% m/m. As the last inflation report before the Fed's June meeting, this release is likely to be key in shaping expectations for the Committee’s next policy decision.

EUR

AUDEUR opens lower this morning losing its 0.61 handle at 0.6084 as markets are currently fully pricing in a rate hike in the eurozone, with a 97% chance of a quarter-point hike when the bank's governing council meets tomorrow. According to data collected by the London Stock Exchange Group, traders are at present expecting the ECB to raise rates about three times. An upward move this week would mark the first hike since September 2023, after Russia's full-scale invasion of Ukraine beginning in February of the previous year drove an energy-price spike. Eurozone equities closed mixed with the DAX -0.7%, and the CAC +0.1%. We will get some minor data out of the eurozone later this evening with Italian Industrial Production m/m, and possibly German 10-y Bond Auction. 

GBP

AUDGBP opens lower this morning at 0.5248 as yesterday’s BRC Retail Sales Monitor y/y came through higher than forecasts. UK Equities closed in the red with the FTSE -1.4%. Nothing set for release out of the UK today, however tomorrow we will see their RICS House Price Balance which is not expected to move markets. All eyes will be focused on their GDP m/m release at the end of the week which is forecasted to drop from 0.3% to -0.1%.

NZD

AUDNZD opens lower this morning at 1.2082 after yesterday’s Manufacturing Sales q/q came through higher than forecasts. Nothing set for release today from our Kiwi neighbours, however this Friday we will see the Business NZ Manufacturing Index and Visitor Arrivals m/m data.