Written by Steven Dooley and Shier Lee Lim
FX quiet despite US data slowdown
We saw another quiet session overnight with US shares mostly higher and FX markets remaining stuck in their low volatility phase.
US shares climbed despite disappointing numbers from both US consumer confidence and the Richmond Fed’s manufacturing index. US shares have also recently seen historically low volatility.
The US dollar was moderately higher in Europe with the EUR/USD and GBP/USD both down 0.1%.
The greenback was mostly lower in Asia with the USD/JPY down 0.1% and the USD/SGD also down 0.1%. The USD/CNH was flat.
The Aussie and kiwi were broadly unchanged ahead of key releases for both currencies.
Australian CPI key for RBA
Australian monthly CPI is due at 11.30am AEDT. We anticipate a 0.1% monthly decline in the CPI for January. January had a 2% decrease in fuel costs, while some CPI basket items—like education—typically show no increase throughout the month.
Furthermore, many service prices—where inflation pressures have been higher—will not be included in the January report. However, according to our projections, base effects will cause the annual rate to increase to 3.6% y-o-y from 3.4%, and the February data is expected to show a further increase in the annual rate.
Even so, these annual rates ought to stay below the CPI for the December quarter (4.1% y-o-y), and we think the underlying inflation trend is still steadily declining.
The value of AUD/USD has decreased from the year’s beginning by 4%. With a mid-year goal of 0.6900 for the AUD/USD pair, we continue to be mildly positive.
All eyes on RBNZ
The Reserve Bank of New Zealand decision is due at 2.00pm NZDT (12.00pm AEDT). We anticipate the RBNZ will declare a 5.50% cash rate that remains steady. Although we believe there is a significant possibility of another rate hike—perhaps as much as 30%—we still anticipate the board to carefully assess the case for raising rates once more.
The RBNZ’s recent remit modification—removing maximum sustainable employment from the policy objective—has sharpened the focus on the inflation goal, and we believe the board would not be scared to deviate from the group of central banks when it comes to discussing the possibility of rate hikes. Nevertheless, the RBNZ has admitted that the current policy is already stringent and has projected that inflation will return to the target range in about six months and to the band’s midpoint in about eighteen months. We anticipate that, in light of its awareness of the lag in policy effects, it will come to the conclusion that, risk-return-basis, another hike is not justified.
The 4Q inflation and labour market indicators support the idea that domestic inflation is slowing and that the RBNZ will soon need to switch to an easing bias. NZ statistics have remained benign.
Aussie, kiwi down from recent highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 26 February – 2 March
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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