Aussie poised ahead of key central bank meetings
The Aussie traded with a heavier tone as last week wore on, weighed by higher US yields and a steep fall in iron prices. The week ahead will be dominated by a central bank meeting bonanza, including the RBA, the BoJ and the US FOMC.
Aussie poised ahead of key central bank meetings
The Aussie traded with a heavier tone as last week wore on. The currency held around 0.6600-0.6635 for a good part of the week, only to slip towards the 0.6555-0.6575 region into the back end.
Curiously, the Aussie, absorbed a stronger than expected February US CPI inflation print (+0.4% for both the headline and core CPIs) mid-last week in stride, along with most other currencies against the USD.
Instead, the usually less influential US producer price inflation report the following day, triggered most of Aussie’s fall last week, that number also coming out stronger than expected.
The Aussie also underperformed the euro last week, though this cross is just holding above 0.6000. The Aussie is faring slightly better against its kiwi cousin, the AUD/NZD cross rising 0.5% last week to 1.0780, its best levels since late January. Aussie also rebounded a little against the Japanese yen, +1 big figure to 97.85, even as speculation about a possible BoJ policy hike this week firmed.
Commodity prices sent mixed signals for AUD last week. On the plus side, copper prices jumped almost 5% last week, while west Texas crude rose to $81.30/bbl, its highest levels in almost 5 months.
But more important for Aussie’s prospects, iron ore prices crashed last week, by more than -13%, to $100/t. Iron ore has now shed all of its gains from the second half of 2023, hit by reports of surging stockpiles of steel and iron ore in China.
Related to these trends, the ASX 200 has been one of the more notable underperformers among developed equity markets this year, down -2.6%, versus a gain of +7.3% for the S&P500, +8.8% for the Euro Stoxx 50 and +11.8% for the Nikkei.
The week ahead will be dominated by a bonanza of central bank meetings, including the RBA, the BoJ and the US FOMC.
The Bank of Japan (BoJ) is widely expected to make sweeping changes to their monetary policy settings this Tuesday. Sentiment towards a possible BoJ policy shift has been simmering for months, with many commentators focussed on their 26th April meeting, coinciding with updated projections.
But expectations swung strongly towards a policy move at this week’s BoJ meeting after Japan’s largest peak union federation (Rengo) announced a preliminary tally of +5.3% in pay increases for their members late last week, substantially higher than expectations. The BoJ is now widely expected to ditch their negative -0.1% policy rate, their first policy rate hike in 17 years, and to make changes to their yield curve control and asset purchases programs too.
This week’s RBA meeting is mostly a placeholder, ahead of the full Q1 CPI due 24th April and with RBA officials recently noting that softening activity broadly tracks their expectations.
Most commentators will be more focussed on any nuance changes to the RBA’s statement and during Governor Bullock’s press conference, for example, whether or not the Bank sounds more balanced in the outlook for interest rates. Previously, the Bank said a further interest rate increase cannot be ruled out.
The FOMC is likely to prove decisive for FX markets this week. The main point of interest is around the Fed’s so-called dot plot projections and the strength of Chair Powell’s resolve to cut rates this year. The Fed’s dots project 3 x 25bp cuts this year, but there’s some wariness that could be trimmed in light of the stronger inflation outcomes in the new year and the ongoing resilience of the US economy.
The main local data point of interest will be the February labour force data. Employment fell -65k in December 2023 and was flat in January 2024. A softening trend in labour market conditions has been unfolding and it has been amplified by shifting post-Covid seasonal dynamics around the new year, exacerbating the impression of weakness. For February markets are braced for a +40k employment rebound and a dip in the unemployment rate to 4.0%, from 4.1%.
Event risk
RBA policy decision, Bank of Japan policy decision (Tue), US Federal Reserve policy meeting (Wed), Aus Feb employment, Japan, Eurozone, UK & US March manufacturing & services PMIs, Swiss National Bank & Bank of England meetings (Thu), RBA Financial Stability Review (Fri).
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