China Struggling to Generate Inflation

AUD

The Aussie dollar opens slightly down against most majors after a light session on the data front, while the ASX closed yesterday’s session up +1.3% in a broad rally that saw the materials sector climb +2.2%. China remained in the spotlight yesterday as their yearly consumer inflation dropped below 1% for the first time in over a year, while persistence in producer price deflation illustrated how an uncertain economic recovery continues to market calls for policy support. The Chinese CPI rose 0.7% y/y in March, being the slowest pace since September 2021, with the main driver being steep reductions in food pricing. Our next major piece of data will arrive tomorrow, where the Aussie Unemployment Rate is expected to climb by 0.1% to 3.6%. Currently investors are mostly convinced that the RBA wont deliver any further interest rate hikes, while markets are anticipating at least one 25bps reduction by the end of this year. A weak jobs report on Thursday could justify this view and hurt the already-wounded Aussie dollar.

USD

AUDUSD opens down at 0.6652 while US equities were lightly mixed as markets remained subdued ahead of this evening’s crucial US CPI report. Headline figures are expected to fall relative to last month (+0.2% m/m and +5.1% y/y), while the Core figure is expected to remain firm at +0.4% as recent data suggests continued strength in core services and a stalling in disinflation among the core goods. The resilient data is expected to bolster expectations of another 25bps hike by the Fed on 3rd May, while the FOMC minutes (released in tomorrow’s early hours) will shed some light on the Fed’s decision to hike by 25bps in March. Markets will likely focus on discussion surrounding global banking turmoil and potential impacts on economic activity, the labor market and inflation.

EUR

Exporters to Europe rejoice as AUDEUR has achieved over-2y lows, opening down at 0.6093 despite a lack of economic data. The DAX and CAC ended the session up +0.4% and +0.9% respectively, while EU Retail Sales for February declined -0.8% m/m as expected with no reaction to the data. It’s a largely quiet period in terms of major Eurozone data, with the next focal point being Manufacturing and Services PMIs next Friday April 21. In terms of the ECB interest rate decision on Thursday May 4, markets are pricing in a 25bps hike, with another 12bps of tightening priced in before maintaining the rate until late 2024.

GBP

AUDGBP opens down to 0.5351 and the FTSE climbed +0.6% with no data from the UK yesterday. GBP volatility may be seen this evening as the Bank of England's Governor Bailey is due to speak about the resilience of the global financial system at an online event hosted by the Institute of International Finance. He’s also expected to speak on ‘The shifting risk landscape’, where he may shed some light on the balance between getting inflation under control and the risk of over-tightening. In terms of tightening, markets are only pricing in another 20 – 25bps of increases from the current 4.25%.

NZD

AUDNZD opens up at 1.0740 with nothing to report out of the Kiwi Land. On Friday, the BusinessNZ Manufacturing Index is expected to reflect a continued expansionary trend from last month’s figure of 52.0, indicating increased manufacturing activity and improved sentiment among NZ firms.