Hawkish Fed Opens Door to Rate Hikes

AUD

The Aussie Dollar opens higher this morning against the major’s bar the USD, as falling oil prices prove to be a two-edged sword. Wednesday’s sharp pullback in oil prices lowered risk sentiment, however it also suggested a lower chance of rate hikes in the near future with markets already suspecting that the RBA may be done tightening. While RBA Governor Michele Bullock did warn the central bank would hike again if needed to restrain inflation, many analysts now assume it would take an alarmingly high reading for second-quarter inflation to push policymakers into moving. Asian equities were mixed in trade yesterday with the Shenzhen +1%, Nikkei +0.7% and the Hang Seng -0.7%. Locally the ASX 200 finished +0.55% with technology and consumer discretionary leading the pack at +2% and +1.1%. Nothing set for release locally for the remainder of the week, with our next major piece of data set for next Wednesday’s inflationary data. 

USD

AUDUSD opens lower this morning at 0.7015 with the US extending its gains after the Federal Reserve hawkishly held the benchmark interest rate steady at 3.75% in Kevin Warsh's first meeting in charge. The Fed's statement that followed was shorter than expected and showed that policymakers expect a hike in borrowing costs later this year amid growing concerns about inflation. Updated forecasts showed nine members now expect a rate hike later in 2026. U.S Retail Sales for May also printed at +0.9% m/m, up from +0.4% and better than forecasts of +0.6% with all core measures also beating expectations. On Wall St. the Nasdaq closed -1.3%, the S&P 500 -1.2%, and the Dow Jones -1.0%. U.S.10-year yields rose 5bps to 4.49%, while Brent Crude was steady at $79 a barrel. Nothing major set for release out of the US tonight with only the Philly Fed Manufacturing Index, and Unemployment Claims both expected to perform better than previous.

EUR

AUDEUR opens higher this morning at 0.6097 as global risk sentiment continues to improve. Nothing of note out of the Eurozone yesterday, ECB President Lagarde spoke at the COTEC Foundation International Summit but there was no movement in the market. Eurozone equities also closed mixed with the DAX +0.1%, and the CAC -0.2%. Nothing major set for release today with only a few minor data releases expected with Current Account, Spanish 10-y Bond Auction and German Buba Monthly Report later this evening. 

GBP

AUDGBP opens higher this morning at 0.5275 after British inflation unexpectedly held steady at 2.8% for May, unchanged from the 13-month low reached in April. UK equities closed in the green with the FTSE +0.1%. Big day for the UK today with a myriad of data releasing, starting with Claimant Count Change expected to drop from 26.5K to 25.8K, however the main highlight will be the BOE’s Official Bank Rate decision at 9pm with forecasts pointing to a hold at 3.75%.

NZD

AUDNZD opens higher today at 1.2150 despite NZ GDP q/q coming through better than previous earlier this morning, coming through on forecast at 0.8%. Markets still expect the Reserve Bank of New Zealand to start tightening soon given its hawkish outlook, though they now imply only two quarter-point hikes this year rather than three. Nothing else set for release today, however tomorrow we will see their Trade Balance.