An overnight note from Commerzbank on the CPI data, the RBA , and the Australian dollar
- The Reserve Bank of Australia (RBA) has also been keeping a close eye on exchange rates with some concern for some time. These concerns are likely to have intensified due to the disappointing inflation data. In Q3 inflation remained below the RBA's target range of 2- 3% contrary to expectations. It is thus a small consolation only that AUD did not appreciate further recently but is only remaining at elevated levels.
- Rather, due to weak inflation levels the RBA is likely to wish that the currency would depreciate notably. There are only two ways to achieve that: either it bets on the Fed strengthening USD with a continuation of its rate hike cycle. Or it takes control itself and eases its monetary policy, moving in the opposite direction of most central banks at present, thus actively weakening AUD.
(bolding mine)
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Further easing risks reigniting the property market, which is (finally) showing signs of slowing house price growth. The RBA has been (still is) concerned that more debt, chasing higher property prices, is a risk to the economy - consumers servicing debt rather than spending elsewhere (that's a nutshell summary). The RBA will lower rates if they become concerned on their two main mandates - inflation and unemployment - but this is not the case right now. Stay tuned to developments I guess.
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Posts re the Aussie CPI data:
- The weaker CPI slowed the AUDNZD a bit. AUDJPY cracking lower.
- Lower CPI send the AUDUSD lower. Tests key swing area.
- Australian CPI for 3Q 0.6% vs. 0.8% estimate. Trimmed mean 0.4% vs 0.5% est.i
- AUD - HSBC on the inflation data, roll back their rate hike call
- More on Australian inflation: "data overstate the true rate of inflation"
