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Key Points:

• Yield differentials between central banks could impact the kiwi attractiveness heading into 2024.
• The Ukraine counter-offensive has begun with NATO going all in as a show of strength to Russia, Ukraine claiming to have taken 7 settlements.
• Recent forecasts are predicting the UK to narrowly avoid drifting into a recession.
• Analysts are predicting the Federal Reserve could take rates to 6.0% over the next year increasing unemployment and increasing the chances of a recession.
• Eurozone PPI slipped 3.6% m/m in April from 3.0% following a 1.3% decline in March.
• US ISM Manufacturing Index fell from 51.9 to 50.3 in May showing a slower pace of expansion.
• US Jobless claims ending 3 June came in hot at 261K compared to 236K expected.
• The Australian Dollar (AUD) has been the standout performer in the month of May compared to the Japanese Yen (JPY) , the worst performing currency.

Major Announcements last week:

• RBA raise interest rate to 4.10%
• Australian GDP 1st quarter 0.2%
• Bank of Canada raise rates from 4.5% to 4.75%
• Chinese CPI y/y prints 0.2% after 0.1% in fourth quarter 2023
• Canadian Unemployment rate jumpos from 5.1% to 5.2%

Monday June 12
All Day AUD Bank Holiday
12th-15th CNY New Loans
Forecast: 1530B
Previous: 719B

Tuesday June 13
5:01am USD 10-y Bond Auction
Previous: 3.45|2.4
1:30pm AUD NAB Business Confidence
Previous: 0
6:00pm GBP Claimant Count Change
Forecast: 21.4K
Previous: 46.7K
6:00pm GBP Average Earnings Index 3m/y
Forecast: 6.10%
Previous: 5.80%
9:00pm EUR German ZEW Economic Sentiment
Forecast: -13.2
Previous: -10.7 Read more

Key Points:

RBA surprises markets with a 25-point hike to their interest rate
Former New Jersey governor Chris Christie enters the Republican Presidential race. He is a long shot but could shake things up and ultimately help Pence the former Vice President topple top candidate Donald Trump.
Global Dairy Auctions show weaker prices, the GDP price index is down 0.9%
Australian first quarter GDP 0.2% vs predicted 0.3%
The Bank of Canada shocked markets overnight hiking their interest rate 25 points to 4.75%. Underlying inflation remains stubbornly high.
Several US banks are speculating that the US economy has a 25% chance (revised down from 35%) of slipping into a recession over the next 12 months.
World Bank global growth forecast has been revised up from 1.7% to 2.1% for 2023, 2024 revised from 2.7% to 2.4% and 2025 at 3.0%
NZ First quarter manufacturing down -2.1% vs 3.9% expected.
The Australian Dollar (AUD) has been the best performer this week, while the worst has been the New Zealand Dollar (NZD).

As we said last week, momentum in the Australian Dollar (AUD) continued off Monday’s open 1.0890 (0.9180) extending to 1.1020 (0.9075) Thursday, the highest level in the cross since February. The RBA surprised markets by hiking 25 points to 4.10% Tuesday rallying the Aussie as buyers dived in. With inflation stubbornly high the central bank is likely to raise rates again in July. Meanwhile Australian first quarter growth came in 0.2% lower than the 0.3% predicted as it continues to slow raising questions around the aggressiveness of the RBA policy. With the cross now well supported below 0.9100 (1.0990) the next area of support lies at 0.9000 (1.1100). Focus now is with next week’s first Q NZ GDP with expectations the economy could slip into recession after a -0.6% release in the last quarter of 2022. This will be unwelcome news for the NZD as the currency becomes less attractive. The saving grace could be high interest rates.

The current interbank midrate is: NZDAUD 0.9076 AUDNZD 1.1008
The interbank range this week has been: NZDAUD 0.9065- 0.9192 AUDNZD 1.0879- 1.1031

The Australian Dollar (AUD) continued to kick on from last week’s low at 0.5220 (1.9150) extending to 0.5385 (1.8570) against the British Pound (GBP) the by-product of a dovish RBA. In a surprise move the RBA hiked interest rates to 4.10% Tuesday its 12th rise in just over a year. Lowe saying with rising wages this could trigger further increases. The Australian economy grew at its slowest pace since 2021 in the first quarter of 2023 just 0.2% raising questions of the aggressiveness of the RBA. Price in the pair is back around 0.5350 (1.8700) areas into Thursday with a little GBP demand. The cross is still trading in a bear trend, a cross through 0.5400 (1.8520) could signal a reversal.

The current interbank midrate is: AUDGBP 0.5351 GBPAUD 1.8688
The interbank range this week has been: AUDGBP 0.5299- 0.5385 GBPAUD 1.8569- 1.8868

The Australian Dollar (AUD) was on the move Tuesday rising to 0.6715 against the US Dollar (USD) post the RBA rate announcement. In a surprise move the central bank raised rates to 4.10% from 3.85% after markets expected no change. Wage pressures and stubborn inflation are the main cause. The Fair Work Commission just announced a 5.75% wage increase in the minimum wage arguing that it wouldn’t add to inflation, but the stakes of further hikes increased. The RBA is likely to raise rates again at the July meeting. Meanwhile interestingly Australia’s economy grew by only 0.2% in the first quarter of 2023 raising questions of the RBA’s thinking. The overall slowdown in the economy will test their confidence that a recession will be avoided.

The current interbank midrate is: AUDUSD 0.6661
The interbank range this week has been: AUDUSD 0.6578- 0.6716

The New Zealand Dollar (NZD) came off the April 2020 low late last week at 0.4820 (2.0740) pushing back to 0.4900 (2.0400) resistance levels before giving back gains to 0.4860 (2.0580) into Thursday in volatile conditions. UK construction came in above expectation with the strongest rise in orders since April 2022, meanwhile the housing slump is the worst since May 2020. Recent GBP gains clearly reflect interest rate moves and expectations due to extremely high inflationary pressures. A UK recession fears however have the potential to overwhelm the Pound, especially in the later part of the year as data prints poor, stressing market sentiment. Clients selling GBP should consider anything at these levels.

The current interbank midrate is: NZDGBP 0.4860 GBPNZD 2.0576
The interbank range this week has been: NZDGBP 0.4850- 0.4904 GBPNZD 2.0389- 2.0615

The New Zealand Dollar (NZD) has been the worst performer over the week across the board but held its ground against the US Dollar (USD) coming off light losses from the weekly open at 0.6055 to 0.6040 this morning. Perhaps supported off the back of AUD gains post the RBA hike. However, the cross is still has a downward bias when we compare to the 0.6400 high in mid-May. It’s been a light week of data with just US Manufacturing printing at 50.3 vs 52.6 adding to US recession fears. With the RBNZ less hawkish of late and what’s expected to be a poor 1st quarter GDP print next week with chances the economy dropping into a recession, we could see further poor performances by the NZD late into the year

The current interbank midrate is: NZDUSD 0.6049
The interbank range this week has been: NZDUSD 0.6028- 0.6099

Monday June 5th
All Day NZD Bank Holiday

Tuesday June 6th
1:00am EUR ECB President Lagarde Speaks
2:00am USD ISM Services PMI
Forecast: 52.6
Previous: 51.9
4:30pm AUD Cash Rate
Forecast: 3.85%
Previous: 3.85%
4:30pm AUD RBA Rate Statement

Wednesday June 7th
2:00am CAD Ivey PMI
Forecast: 57.2
Previous: 56.8
11:20am AUD RBA Gov Lowe Speaks
1:30pm AUD GDP q/q
Forecast: 0.30%
Previous: 0.50% Read more

The British Pound (GBP) broke into new territory midweek against the Australian Dollar (AUD) slipping past the key level at 1.9040 (0.5250) on its way to reach 1.9180 (0.5215) the January 2022 level. Of note the Pound has outperformed the Aussie 4 months straight ending May. A solid break through 1.9220 (0.5200) could signal further momentum for the GBP. Central bank divergence should continue into the end of the year with the Bank of England predicted to hike interest rates again in June, August and September. Next week’s RBA release should see a “no change” from the 3.85% more than likely putting the AUD underweight.

The current interbank midrate is: AUDGBP 0.5250 GBPAUD 1.9047
The interbank range this week has been: AUDGBP 0.5213- 0.5303 GBPAUD 1.8855- 1.9182