CPI hits year’s high in Q4
AUD/USD firmed to an intra-day high of 0.7197 after quarterly inflation data showed a slight acceleration. The RBA’s favoured trimmed mean CPI came in as expected at +0.4% q/q and +1.8% y/y, but the quarterly headline number hit +0.5% q/q, the highest for 2018 and more than the +0.4% economists had forecast. That was the catalyst for the Aussie gains and AUD/USD could close above the 55-day moving average at 0.7186 for the first time in two weeks.
AUD/USD Daily Chart
RBA meeting could get interesting
The data per se is unlikely to shift the central bank’s monetary policy stance. If anything, yesterday’s dismal NAB business surveys could have more of an impact. The business conditions index slumped to 2 in December, the lowest reading since February 2015, from 11 in November. Firms’ profitability index has collapsed from 14 to zero in just two months, while forward orders have turned negative. Not exactly a bullish outlook.
The RBA meets next Tuesday, February 5, having kept interest rates at a record low of 1.50% for the past 26 meetings going back to September 2016. Yesterday, RBA board member Ian Harper said the next move in rates was likely to be higher, but I’d have to guess the speech was written before the data was known. We could see a more dovish tone from the RBA next week, which would exert downward pressure on the Aussie.
Light at the end of the tariff tunnel?
The US and China begin a scheduled two-day meeting to discuss trade issues. The January 4-7 meeting ended with some positive feedback/vibes but since then an escalation in the Huawei situation, has placed a cloud over the proceedings. Nevertheless, US Treasury Secretary Mnuchin sounded positive in an interview early yesterday, saying if China presents enough trade concessions, then there is a chance the US administration may lift all tariffs. Now that would be good news for risk appetite. On the opposite side of the spectrum, the March 1 deadline is looming where, if no deal is struck, the US will increase its tariffs on $200 billion worth of Chinese goods to 25% from the current 10%.
Euro-zone sentiment to show further weakness
Euro-zone sentiment indicators are expected to continue with a weaker bias in January, latest polls suggest. Economic sentiment is seen dropping to 106.8 from 107.3, the business climate index to 0.75 from 0.82 and industrial confidence to 0.5 from 1.1, further confirming Draghi recent comments about downside risks to the economy.
FOMC on tap
The Federal Reserve holds its first policy meeting of the year today, and is widely expected to keep rates unchanged and continue its recent theme of patience when it comes to more rate hikes. Chairman Powell will hold a press conference after the meeting, a new initiative starting this month.
We could see more reaction if there is discussion about the Fed adjusting its holdings of Treasury securities, possibly bringing the winding down of purchases to an end earlier than expected, as had been suggested in a Wall Street Journal story late last week.
The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/
Live Market Analysis by Oanda’s Craig Erlam
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