Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Australian dollar sell the rumour, buy the fact
Australian dollar sell the rumour, buy the fact
By David Llewellyn-Smith   |  Jun 16, 2022 08:45
Saved. See Saved Items.
This article has already been saved in your Saved Items

DXY eased overnight as the Fed delivered its 75bps knockout hike:


AUD did the usual buy the fact:

Encouragingly, oil did not:

But everything else did: EMs (NYSE:EEM), miners (LON:GLEN), commodities, junk (NYSE:HYG):

Treasuries were bid:

With stocks:

Westpac has the wrap:

Event Wrap

The Federal Reserve hiked the funds rate band by 75bp to 1.50%-1.75%, as was widely expected following last Friday’s inflation data surprise. It is the largest rate increase since 1994. The statement said that ongoing increases in the funds rate will be appropriate, without giving any indication of the size, although the accompanying dot plot rate projection jumped from 2.75% to 3.38% for end-2022, and from 2.75% to 3.75% by end-2023. The long-run rate is seen at 2.50% (from 2.38%). In his press conference, Chair Powell said the next moves are expected to be 50bp or 75bp, with the latter less common. He said the recent inflation data and inflation expectations survey warranted today’s large move. The vote was 10-1 (George dissented in favour of 50bp).

US retail sales in May disappointed at -0.3%m/m (est. +0.1%). Given prices rose, a large fall in volumes is implied. The NAHB homebuilder sentiment survey was close to expectations, at 67 (prior 69), reflecting softer demand after two strong years as mortgage rates rise and cost pressures persist. The Fed NY (Empire) manufacturing survey rebounded to -1.2 (est. +2.3, prior -11.6). While new orders and employment picked up, a headline reading below zero implies contraction.

ECB announced an out of schedule General Council meeting to discuss policy normalisation, the rapid shifts in yields, and the risk of greater fragmentation (i.e. inter-country yield spread widening).

Eurozone industrial production in April was near expectations at +0.4%m/m (est. +0.5%m/m), prior revised to -1.4%m/m from -1.8%m/m).

Event Outlook

Aust: Despite the robust demand for labour as evinced by job vacancies, weekly payrolls remain weak; Westpac therefore anticipates employment to lift by 5k in May (vs. consensus +25k) with a clear risk of a negative print. A very small decline in participation should see the unemployment rate round down to 3.8%. MI inflation expectations should continue to hold at an elevated level in June. The RBA’s June Quarter Bulletin will also be published.

NZ: Westpac expects GDP held flat in Q1 (market consensus +0.6%) due to omicron-related disruptions through the quarter.

UK: The Bank of England is expected to raise the bank rate by 25bps at their June meeting given the clear need to rein in inflation despite weak growth.

US: Strength in the labour market and limited supply should continue to support housing starts and building permits into the medium-term (market f/c: -1.8% and -2.5% respectively). The June Phily Fed index will reflect inflation and supply chain concerns; and initial jobless claims is expected to remain at a low level (market f/c: 218k).

The Fed sees a gentle slope down for inflation and growth as unemployment gradually rises:

As it expects to double the cash rate from here by 2023:

Expect, rather, more downside for asset prices, a recession and spike in unemployment, plus a huge deflationary wave in 2023.

If so, AUD has not bottomed.

Australian dollar sell the rumour, buy the fact

Related Articles

David Bassanese
Bear Market Folly By David Bassanese - Aug 15, 2022

Week in review By far the global highlight last week was the softer than expected US July consumer price index report, with both headline and core inflation lower than market...

Australian dollar sell the rumour, buy the fact

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email