Key CPI Gauge Edges Closer to RBA Target

AUD

The AUD opens mixed against majors, having weakened a little in yesterday’s session after Australia’s key inflation gauge cooled, suggesting the Reserve Bank of Australia may have room to consider easing interest rates sooner than later. While headline CPI increased a tad to 2.3%, the closely watched trimmed mean core measure, which smooths out volatile items, slowed to 3.2% from 3.5%. Economists expect the RBA’s next move will be to lower interest rates, although they are divided on the timing given the somewhat sticky inflation and an uncertain global backdrop. Markets now see about a 70% chance of a 25bps cut to the Cash Rate in Feb from the 13-year high of 4.35%. A cut is fully priced in by April. Asian equities ended yesterday mixed with the Nikkei -0.2%, Hang Seng -0.9% and the ASX +0.8%. Today, we’ll see Aussie Retail Sales figures. The RBA is well aware of the current weakness of household consumption and is on alert for signs of further deterioration. Therefore, today’s monthly Retail Sales report for November (expected at +1.0%) should be a timely and valuable opportunity to take the pulse of the consumer. Chinese inflation figures are also due at 12:30pm. China’s flailing economy is largely priced into the AUD, so any signs of a recovery, including an increase in consumer prices, could give the Aussie Dollar a much-needed lift.
 

USD

AUDUSD has fallen to 0.6215 in the aftermath of a downtick in Australia’s trimmed mean core inflation gauge yesterday. A relatively subdued session on Wall St. overnight saw all three major equity indices trading unchanged late in the session. US private sector job creation eased more than expected in December while wages grew at the slowest pace in almost 3 ½ years. The ADP Non-Farm Employment Change showed companies added a seasonally adjusted 122k jobs in December, down from 146k additions in November. Also, the Federal Reserve’s Waller said he believes inflation will continue to cool towards the central bank’s 2% target, prompting his support for additional interest rate cuts this year. Tonight, various FOMC Members will be speaking. Tomorrow evening’s Non-Farm employment report will be the key event this week.
 

EUR

AUDEUR opens flat at 0.6025, touching 0.6003 lows after Australia’s fall in core inflation yesterday before recovering to current levels. The DAX and CAC ended yesterday -0.1% and -0.5%. Eurozone producer prices increased by 1.6% in November according to PPI figures overnight, being slightly higher than expectations, with minimal impact on the Euro. Tonight will bring German Industrial Production figures, Eurozone Retail Sales and the European Central Bank’s Economic Bulletin.
 

GBP

AUDGBP kicks off the day stronger at 0.5023 with the Pound plunging in response to Trump tariff headlines overnight, leaving it the worst-performing major currency in the session. US President-Elect Trump is considering declaring a national economic emergency to allow for a new tariff program. The FTSE closed +0.1%. Another quiet week on the UK data front. Later this morning we’ll see the BRC Shop Price Index y/y.
 

NZD

AUDNZD starts the day higher at 1.1082 with ANZ Commodity Prices showing a +0.2% m/m bump yesterday. No Kiwi data ahead of Building Consents figures, on Monday morning. Markets are still wagering the Reserve Bank of New Zealand will cut its 4.25% Cash Rate by an outsized 50bps in February given the economy is in a far deeper hole than previously thought.