RBA senses relief as Australian Inflation softens and GDP trims

Investors dumped the Australian Dollar in the Asian session after the Australian Bureau of Statistics reported significantly lower monthly Consumer Price Index (CPI) figures than anticipation. The monthly Consumer Price Index (CPI) (Jan) dropped significantly to 7.4% from the expectations of 8.0% and the prior release of 8.4%. A mammoth decline in the inflation data is going to provide a big relief to Reserve Bank of Australia (RBA) policymakers.

The Reserve Bank of Australia has been making efforts in bringing down inflationary pressures by the continuation of policy tightening. Reserve Bank of Australia Governor Philip Lowe has already pushed its Official Cash Rate (OCR) to 3.35% in order to tame the stubborn inflation. And, more rates must be in pipeline to achieve price stability sooner.

Apart from the monthly CPI, Australian Gross Domestic Product (GDP) (Q4) has dropped to 0.5% from the consensus of 0.8% and Q3 figure of 0.6%. On an annualized basis, the GDP has remained in line with expectations at 2.7%. A decline in GDP numbers also showcases lower demand from households, which will trim inflation projections ahead as producers will be forced to scale down the prices of their offerings.

Upbeat Caixin Manufacturing PMI strengthens the Australian Dollar

It was widely anticipated that China’s manufacturing sector will outperform after the rollback of strict lockdown measures. Chinese administration and the People’s Bank of China (PBoC) are dedicated to spurring economic recovery by improving domestic demand. The IHS Markit reported the Caixin Manufacturing PMI data at 51.6, higher than the expectations of 50.2 and the former release of 49.2.

Apart from that, China’s National Bureau of Statistics (NBS) Manufacturing PMI (Feb) landed higher at 52.6 vs. the consensus of 50.5 and the prior release of 50.1. The Services Manufacturing PMI exploded to 56.3 against 54.4 released in January while the street was anticipating a downbeat figure at 49.7.

It is worth noting that Australia is the leading trading partner of China and a sharp recovery in the Chinese economy is also supportive of the Australian Dollar.

ISM Manufacturing PMI- the next trigger for the US Dollar

The street is awaiting the release of the United States Institute of Supply Management (ISM) Manufacturing PMI data. As per the consensus, the economic data is seen at 48.0 from the former release of 47.4. Apart from that, the New Orders Index that conveys forward demand is expected to rebound to 43.7 from the prior figure of 42.5.

It is worth noting that the Manufacturing PMI is in a contraction phase consecutively for the past three months. A figure below 50.0 is considered as a contraction in the extent of activities. Federal Reserve policymakers are expected to keenly watch the PMI figures as a surprise upside could strengthen the expectations of more hikes ahead.