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29 May 2023

Subdued holiday markets

• Holiday markets. Limited moves with the US, UK, & parts of Europe on holiday. In-principle agreement to raise US debt ceiling to be voted on over coming days.• Global data pulse. Global data flow picks up later this week. China PMIs (Weds), Eurozone CPI (Thurs) & US labour market report (Fri) in focus.• AUD consolidating. Global forces should act as a AUD headwind, offsetting support expected to be generated by upcoming local events. A quiet 24hrs across global markets with the US, UK, and some European countries on holiday, and no major economic data released. Across the markets that...

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28 May 2023

Debt ceiling deal (nearly) done

• US debt ceiling. An agreement to raise the ceiling looks to have been reached. It must now be voted on by both chambers of Congress.• Back to fundamentals. Removing a tail risk should see markets refocus on the policy outlook. US inflation is still too high. Another strong labour market report should be USD supportive.• AUD cross-currents. AUD found some support. Shift in relative interest rate expectations & softer global growth pulse likely to limit the AUD’s rebound. Markets ended last week on more positive footing, with equities rising (the US S&P500 rose 1.3% while the tech-focused NASDAQ outperformed...

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25 May 2023

AUD & NZD pressure points

• USD upswing. Market pricing for the US Fed has shifted substantially over recent weeks. This is supporting the USD. AUD hit a 2023 low overnight.• US debt ceiling. Limited progress with the ‘x-date’ fast approaching. Ratings agencies have flagged the risk of a US sovereign rating downgrade.• AUD underperformer. The global backdrop is weighing on the AUD. Australian retail sales released today, but offshore forces are more important Mixed fortunes across asset markets, although underlying issues and risks such as the US debt ceiling negotiations, slowing growth, and still high inflation, remain firmly in place. US equities rose as...

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24 May 2023

Shake, rattle & roll

• Negative vibes. Little progress on US debt ceiling negotiations, ongoing growth worries, & worrying UK inflation data weighed on risk sentiment.• Stronger USD. The backdrop has boosted the USD. Base metals & equities declined. AUD dipped to ~$0.6540, its lowest level since mid-November.• AUD pressure. Except for AUD/NZD, AUD also underperformed on the crosses. More pressure on the AUD expected, but stats show it is entering rarefied air. Another negative night for markets with little progress on US debt ceiling negotiations, growth worries, and some ‘sticky’ inflation data weighing on risk sentiment. Running through the list, the political impasse...

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24 May 2023

Cross-Check: AUD/NZD – RBNZ: end of the line

At its May 2023 meeting the RBNZ looks to have delivered its last interest rate hike for this cycle. The 25bp move, which was predicted by most market analysts, takes the Official Cash Rate up to 5.5%, a high since late-2008. And as the chart below shows, following the very abrupt tightening phase which started in NZ in October 2021, interest rates are now well into ‘restrictive’ territory (i.e. above the estimated equilibrium neutral rate). According to the RBNZ rates will need to “remain at a restrictive level for the foreseeable future” to ensure inflation (now 6.7%pa) returns to the...

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