Daily Market Commentary 8th February 2023

The RBA raised interest rates by 25 basis points, in line with expectations, ignoring the temptation to go even harder. The big spike in the last inflation number in Australia spooked many, but the RBA has remained calm, holding the line. The Central bank is caught between a rock and a hard place, with higher rates testing a heavily indebted nation, which could have severe consequences on the real estate market and the consumer. The AUD shot up to trade well above 0.6900, despite the news being anticipated, but later settled around 0.6900. Australia has a very robust export sector, but record budget deficits and growing debt have enabled inflation an environment to thrive. The NZD trades around 0.6300, seemingly ahead of the Australian inflation problem, with early aggressive action.

German Industrial Production contracted 3.1%, contradicting recent hints at a rebound in the industrial/manufacturing sector. The continued elevated energy prices are taking their toll on industry and manufacturing across Europe and this is reflected in trade data. French trade deficits have been huge all 2022 and are set to continue into 2023, as energy imports sky-rocket and exports dwindle. These trade deficits are magnified when it comes to the USA, which is dependent on consumer imports and has run massive deficits for years. The US relies on the USD Dollar’s reserve status to fund these deficits, but settlement of oil, gas, minerals in third currencies, are growing. US Bond yields continue to rise, supported by Central bank actions and policies. The EUR fell below 1.0800, while the GBP struggles to hold onto the big figure, of 1.2000.