RBA Gov to Testify at Hearing Today

AUD

The Aussie dollar opens up against majors this morning after another strong day for commodities saw SGX Iron Ore up +0.5%, while Gold rose +0.3%. The ASX finished yesterday’s session +0.2%, led by tech and communications stocks while Asian equities finished the day higher. Yesterday’s NAB Business Confidence release saw the headline figure increase to 6 from -1, reflecting slight short-term optimism among domestic firms given the apparent recent pace reversal for domestic goods price inflation. On the other foot, Westpac Consumer Sentiment data represented a fall back into deep pessimism, being down -6.9% from the previous month. This isn’t surprising given cost of living pressures and interest rate rises continue to weigh heavily on Aussie households. Hopes of a pullback in both have been stamped out by the firm December CPI print as well as the RBA’s resumption of its interest rate tightening campaign. Do doubt RBA Governor Lowe will be addressing these topics today as he faces lawmakers in a parliamentary hearing addressing the Central Bank’s recent anti-inflation campaign. Lowe did himself no favors with the media by attending a private lunch with bankers, including interest rate traders, last Tuesday before making any public appearance on the policy shift. We’re light on data this week so the main focus will be on Lowe’s commentary.

USD

Having briefly touched 0.7030 in the early hours, AUDUSD opens up at 0.6986 & Wall St was mixed after US inflation data arrived slightly above expectations. While US CPI for Jan printed as expected at 0.5% m/m, the yearly figure came in at +6.4%, beating expectations of +6.2% yet still ever so slightly lower than last month’s print. The reading was largely contributed to by a recent +2.5% jump in auto prices & the lagging relationship of interest rate rises/property prices. Shelter accounts for about a third of the US inflation basket and may prove sticky given the lagged effect on data of house price declines & renewed rental agreements. The Fed’s Logan suggested further ‘gradual’ rate hikes were required while Harker added they’re getting close to restrictive territory. Not much in the way of US data today, while tomorrow we’ll see the Empire State Manufacturing Index & Retail Sales data (headline figure’s expected to increase +1.9% m/m).

EUR

AUDEUR opens up at 0.6508 & European equities were largely flat given the lack of eye-catching data over the past 24h. The Eurozone economy grew +1.9% y/y in Q4 2022, in line with expectations, while the seasonally adjusted figure arrived at +0.1% for the quarter. The Euro calendar is also relatively quiet this week with ECB commentaries scattered over the coming days. Economists are expecting a rather contained impact from the Central Bankers’ words moving forward, as markets have probably absorbed in-full the pushback against the dovish reaction to the February ECB press conference & will now focus on key data releases (eg PMI data next Tuesday).

GBP

AUDGBP opens up at 0.5740 while the FTSE finished the session up +0.1%. Yesterday saw the Conference Board’s Leading Economic Index declining -0.8% in December, following a -0.4% drop in November and pointing towards elevated recessionary risks in 2023. Today, all eyes will be on the UK’s CPI y/y figure, expected to fall slightly at 10.3%. The Bank of England will obviously take into this week’s strong wage data when forming their interest rate strategy moving forward. The central bank’s preferred measure of wage growth has now been consistently above 7% for a few months (3-month/3-month annualized change) and some surveys suggest there’s very little evidence of a wage slowdown. The BOE is in a tight spot.

NZD

AUDNZD furthers its upward trend, opening at 1.1021 as one-year inflation expectations remained relatively stable this quarter at 5.11%. Notably, the 2-year projection dropped to +3.33% in line with expectations that the RBNZ will hike by a minimum of 75 basis points this quarter. This would take the Kiwi’s cash rate to 4.9% as they also grapple with a resilient labour market, declining house prices & persistent consumer prices.