AUD Weakens On Monetary Policy Musings, China Services PMI Miss

The Aussie dollar went offered even as firmer crude oil prices lent support to the CAD and NOK. The RBA's hawkish pivot communicated earlier this week was reassessed in the light of yesterday's monetary policy decision from the Fed, who delivered the expected 50bp rate hike and played down potential for larger rate increases going forward.

• AUD/NZD extended its pullback from a cycle peak printed on Wednesday in tandem with a parallel move in Australia/New Zealand 2-year swaps spread. RBNZ Gov Orr defended his inflation fighting record, brushing away suggestions from opposition lawmakers that his MPC was too slow in taking the heat out of the economy.
• Spillover from China likely played a role in AUD weakness, as Caixin Services PMI missed expectations by a solid margin, extending its run of downside surprises, as harsh Covid-19 countermeasures took their toll.
• The GBP depreciated, joining the AUD at the bottom of the G10 pile. Local elections to be held in the UK on Thursday provide a key source of political risk, as a poor result for the Tories would deliver another blow to PM Johnson. In addition, polls are showing that unionist Sinn Fein party maintains a lead over its rivals ahead of the Northern Ireland Assembly election.
• Offshore yuan see-sawed as the third consecutive firmer than expected PBOC fixing was countered by local PMI data. The People's Bank returned after the long weekend setting the yuan reference rate 27 pips below sell-side estimate, signalling continued willingness to lean against redback weakness.
• Central bank activity picks up from here, with monetary policy decisions from both the Bank of England and the Norges Bank coming up later in the day, with ECB's Lane, Centeno & Holzmann and BoC's Schembri set to speak. Today's data highlights include German factory orders and U.S. weekly jobless claims.