AUSTRALIA DATA: Inflation Expectations Lowest Since 2021
The Melbourne Institute’s consumer inflation expectations rose sharply by 0.6pp to 4.6% in February but more than reversed that in March with a 1pp decline to 3.6%. This was the lowest reading since Covid-impacted August 2021 and is now down around 3pp from June 2022’s peak.
- With Westpac citing inflation as still the main news item recalled by respondents in its consumer confidence survey, cost-of-living issues remain a problem. Lower inflation combined with higher nominal disposable incomes should help support consumption going forward.
- The near-term downward revision in the RBA’s expectations for underlying inflation and its increased confidence that it is returning sustainably to the band likely helped to drive inflation expectations lower in March.
- Petrol prices are down this month to date and may have also helped to reduce inflation expectations.
- February CPI data is released on March 26.
Australia underlying inflation %
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FOREX: USD Index Ticks Higher, Yen Firmer Against NZD & AUD
The USD is a touch higher in early trading, with the USD BBDXY index up over 1304.10. We remain within recent ranges for this index though. The yen is outperforming against AUD and NZD, albeit at the margins. US President Trump signed executive orders earlier bringing 25% tariffs on steel and aluminium imports into effect from March 4.
- Trump made other remarks in the oval office, stating Tariffs on autos and chips and other areas, including pharmaceuticals will be coming next Trump stated. Reciprocal tariff details will also be released in the next few day, Trump added.
- He also stated he will consider an exemption for Australia, which follows an earlier phone call between Trump and Australian PM Albanese.
- AUD/USD has ticked down, last near 0.6270/25, while, NZD/USD is back to 0.5630. Both currencies are off 0.10-0.15% at this stage.
- US equity futures are down, a little over 0.20% for Eminis at this stage. There is no cash US Tsy trading today with Japan markets out. Tsy futures are ticking up in early Tuesday dealings.
- USD/JPY is down modestly, but at 151.80/85 remains within recent ranges. Other currencies are mostly down a touch versus the USD.
- Coming up we have NAB business confidence for Australia. Earlier we had the Westpac consumer confidence print, which was little changed at 92.2.
AUSSIE BONDS: AU-US 10Y Diff Remains In Bottom Half Of Range
The AU-US 10-year cash yield differential currently stands at -9bps, positioned in the lower half of the ±30bps range that has largely held since November 2022.
- A simple regression of the 10-year yield differential against the AU-US 1-year forward 3-month swap rate (1Y3M) differential over the past year suggests the current spread is about 10bps above fair value, estimated at -19bps.
- The 1Y3M differential, a key gauge of expected relative policy trajectories over the next 12 months, has traded within a 15bps range this year and is currently at the lower end of that range.
- The 1Y3M differential has declined approximately 90bps since mid-September, falling from +55bps to -35bps.
Figure 1: AU-US Cash 10-Year Yield Differential (%)
Source: MNI – Market News / Bloomberg
MNI: UK BRC JAN BY VALUE SHOP SALES LFL +2.5% YY, TOTAL +2.6% YY
- MNI: UK BRC JAN BY VALUE SHOP SALES LFL +2.5% YY, TOTAL +2.6% YY
