Aussie Inflation Cools While Economic Growth Slows
AUD
The Aussie dollar opens mixed against majors while the ASX finished yesterday’s session down -0.1% off the back of weaker-than-expected CPI & GDP data. The Australian economy’s slower economic growth (+0.5% m/m against expectations of +0.8%), paired with an easing in the annual inflation rate to 7.4% (last month’s y/y figure was 8.4%) may encourage the RBA to re-asses how aggressive it needs to be with future interest rate hikes. Both the RBA and Treasury expected inflation to have peaked last year, which was supported by yesterday’s data, while Treasurer Jim Chalmers has expressed confidence that Australia will evade a recession. The RBA interest rate announcement will be made at 2pm AEST next Tuesday, with an expected focus on Governor Lowe’s commentary given last month’s contemplation of a 50bp hike. We’re currently sitting at 10y highs with the cash rate at 3.35%. To Asia, equities were largely higher with the Hang Seng up +4.2% after Chinese Feb Manufacturing PMIs rose to their highest levels since April 2012 (52.6 ahead of last month’s 50.1). Their economy is displaying signs of a rebound after Covid restrictions were abandoned late last year, with services activity climbing (56.3 against last month’s 54.4) & stabilization within the housing market. The decent PMI readings provide a positive platform for the upcoming National People’s Congress this weekend, where officials are expected to disclose a new growth target of 5.5 – 6.0%. No major domestic data is expected ahead of next Tuesday’s RBA interest rate announcement, where our Reserve Bank will test just how tight they can squeeze Aussie households.
USD
AUDUSD opens up at 0.6760 while Wall St traded slightly lower ahead of the close, with the NASDAQ down -0.8%, S&P 500 -0.6% and the Dow Jones -0.2%. Last night’s ISM Manufacturing PMI data arrived at 47.7, falling 0.2 short of expectations, indicating the US manufacturing sector extended its slump in February as demand continues to slow in the face of rising borrowing costs. More interest will paid at Friday’s ISM Services PMI, given Feb’s better US data (think strong NFP, Retail Sales & higher monthly CPI + PPI) has underpinned market expectations of an even more aggressive Federal Reserve. On Friday, we’ll also see FOMC Member Waller speak about the economic outlook at the Mid-Size Bank Coalition of America Virtual Event.
EUR
AUDEUR opens down at 0.6335 while the DAX and CAC ended the session down -0.4% and -0.5% respectively after CPI data suggested Spanish Feb core inflation pushed to a new cycle high. The ECB’s Nagel indicated underlying price pressures remain ‘very high’. He also noted further steps are needed to keep inflation under control & expressed the need to maintain the terminal rate once reached. This evening, the Eurozone CPI Flash Estimate y/y is expected to fall by 0.3% to 8.3%, while the core figure remains tenacious, expected unchanged at 5.3%. If anticipations are correct, the continued trend in underlying inflation should feed into market pricing of an extended ECB tightening cycle into 2024, with the deposit rate (currently 2.5%) possibly reaching 4% despite ongoing easing in energy prices.
GBP
AUDGBP opens up at 0.5620 while the FTSE closed out the session up +0.5% despite hotter-than-expected UK Feb Manufacturing PMI data. UK manufacturing production rose for the first time in eight months, with the figure arriving at 47.3 (expectations 47.2), as supply chain pressures ease. Resilience within the manufacturing sector was underpinned by stabilization of client demand which put a halt to the recent downturn in output. To the Bank of England, Governor Bailey gave a speech about the cost of living squeeze & the future path of interest rate decisions, indicating there’s no easy way out of the current situation. He stressed the importance of incoming inflation data when determining the course of monetary policy strategy. No major data expected today.
NZD
AUDNZD opens down at 1.0801 with no noteworthy data out of Kiwiland. Tomorrow, RBNZ Governor Orr is expected to speak about the New Zealand economy at an event hosted by Waikato University, in Hamilton. He’ll likely add top recent commentary that while there are early indications that inflation is slowing, monetary conditions need to tighten further.