Australian Dollar, AUD/USD, GDP, S&P ASX 200, CPI, RBA – Talking Points
- of Australian dollar later lost his position GDP it was a pity
- stagflation could compromise the prospect of a soft landing
- The RBA is expected to raise rates next week. Is it good or bad for AUD?
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After Q4 quarterly GDP reached 0.5% instead of the forecast 0.8%, the Australian dollar fell below 0.7% previously revised upwards from 0.6%.
Full-year GDP to the end of December was revealed at 2.7%, as expected, a further upward revision to the previous quarter. The previous read was 5.9%.
Today’s GDP numbers are released ahead of the Reserve Bank of Australia’s monetary policy meeting next Tuesday. They are expected to raise their cash rate target by 25 basis points (bp) to 3.60%. That would be the 10th rate hike since the liftoff last May.
The latest inflation rate is 7.8% y/y, well above the RBA’s target band of 2-3%. Today’s data is based on yesterday’s retail sales and current account balance.
The fourth quarter current account surplus was AUD 1.41 billion versus a forecast of AUD 5.5, revised to AUD 0.8 billion from AUD -2.3 billion in the previous press release.
Monthly retail sales in January were up 1.9%, instead of the expected 1.5% and -4.0% previously.
Fundamental data show mixed signs for the economy, but the RBA appears to have no choice but to tighten further in the short term as inflation is so rampant.
The situation ahead of the track is highly uncertain and looks somewhat opaque. Some leading indicators may portend headwinds ahead. House prices continue to fall, and business sentiment polls are deteriorating.
Source; Bloomberg
Source; Bloomberg
Potentially exacerbating the problem is the so-called ‘mortgage cliff’, where fixed-rate borrowers could readjust their repayments 300 bp or more higher.
All of this points to a bleak future for the RBA. The latest unemployment data showed that the labor market was easing slightly, but the unemployment rate was still relatively tight at 3.7%, historical indicators. Curbing price pressure when aggregate demand is softening could lead to deepening stagflation.
While this scenario may be bearish for AUD/USD, a weaker exchange rate could boost the domestic economy, especially if China can ignite its growth plans. The upcoming National; People’s Congress (NPC), which begins this weekend, may offer some insight into this outlook.
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— Written by DailyFX.com Strategist Daniel McCarthy
please contact daniel @DanMcCathyFX on Twitter