Markets closed in a risk-averse mood amid the continuing war in Ukraine. The S&P500 closed down 1.5%, the safe-haven USD rose, and oil and bond yields rose slightly. The US dollar index rose 0.6% on the day. EUR fell from 1.1000 to 1.0902. USD/JPY rose from 116.60 to 117.36 – a high since 2016. AUD fell from 0.7355 to 0.7282. NZD fell from 0.6860 to 0.6799. AUD/NZD ranged between 1.0685 and 1.0730.
US 2yr treasury yields rose from 1.70% to 1.76% (highest since Dec 2019), while the 10yr yield ranged between 1.97% and 2.02%. Markets fully price a 25bp hike in March. Australian 3yr government bond yields (futures) fell from 1.84% to 1.79%, while the 10yr yield fell from 2.41% to 2.35%. The first RBA rate is priced for June 2022.
Commodities, Brent crude oil futures rose 3.3% to $113, copper fell 0.6%, gold fell 0.3%, and iron ore fell 2.5% to $154.
Overnight Currency Range
The week ahead is expected to be a busy one with no shortage of economic data due out and the Fed likely to hike rates by 25 bps on Wednesday. Domestically we have labour force data for February and New Zealand’s Q4 GDP release will come into focus on Thursday. The former should show ongoing solid growth in employment. Hours worked are likely to have bounced back strongly, but possibly not completely, following the 8.8% m/m decline in January. Most ‘shadow’ labour market indicators remain positive and suggest the labour market tightened further in February.
AUD/USD traded in a 0.7283/0.7368 range to round out last week. Offering interest is expected ahead of 0.7450 while demand should materialise if we dip back to 0.7250.
Event Risk Data Today
NZ: The rise in mortgage rates and tightening of lending conditions should continue to see REINZ house prices and sales fall in February. Meanwhile, net migration should also remain weak in January given the border closure.
Eurozone: With the broad-based easing of supply pressures still absent, Eurozone industrial production is set to remain weak in January(market f/c: 0.1%).