RBA: Lowe Stresses Bank Not On Pre-Determined Path, Tips Hat To Potential Cuts In ‘24
RBA Governor Lowe’s testimony before the House of Representatives Standing Committee on Economics has concluded.
- The opening statement generally went over old ground, stressing that the Bank expects further rate rises in the months ahead, underscoring the risk of not taming inflation.
- The tweaks to the Bank’s January statement were deemed an “evolution, not a revolution,” while Lowe highlighted the need to signal clarity that the Bank is “not done yet.” The Bank is also clearly cognisant of the lagged impact of the already delivered tightening, pointing to the impact lasting well into ’24.
- Interestingly, Lowe highlighted the idea that the Bank is not on a pre-determined path, with data guiding its decisions. This comes after the Feb post-meeting statement once again removed any reference to “not being on a pre-set path” from the guidance paragraph, which the market and sell-side took as a hawkish signal.
- RBA Assistant Governor (Economics) Ellis noted that the labour market is not quite as tight as it was a few months ago, while Lowe flagged that yesterday’s labour market report will not impact forward guidance, but conceded that another soft print would trigger a re-assessment (with the various abnormalities in the data highlighted).
- Lowe pointed to strong domestic demand supporting goods inflation, as well as the big difference in realised trimmed mean CPI in Q4 vs. RBA exp.
- The RBA has also received signals that wage growth is picking up once again, although firms have told the Bank that ’24 pay rises won’t be as sizable.
- Lowe concluded the Q&A by suggesting that it is plausible that rate cuts could be in play in ’24, although noted that a lot “has to go right” for that to be realised.
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AUD: A$ Range Trading Ahead Of BoJ And Key US Data
AUDUSD has been range trading during the APAC session and is currently around 0.6986. It reached a high of 0.6993 earlier, as 0.7000 provides resistance. The USD is slightly higher.
- Aussie is lower again against the kiwi by around 0.3% to 1.0843. But it is stronger against the yen rising 0.4% to 89.90 ahead of today’s BoJ announcement. We expect the Bank to keep policy unchanged. AUD is trading sideways versus EUR around 0.6475 but is up slightly against GBP to 0.5691.
- Equity markets are mixed across the region with the ASX flat, the Nikkei up 0.6% but the Hang Seng down 0.6%. S&P e-minis are down 0.2%. WTI oil prices are trading in a narrow range but are still up 0.7% on the NY close to about $80.74/bbl. Iron ore prices are steady at just around $121/t and copper prices are down 0.1%.
- The announcement from the BoJ will made later today. Wednesday’s focus is likely to be US December retail sales and PPI. But there are also December CPI readings for the euro area and the UK.
NZD: Holds Gains, Outperforming
NZD/USD prints at $6440/45, ~0.3% firmer in today's trading, NZD is the strongest performer in G10 space at the margins.
- The pair has held onto yesterday's gains, dealing in a $0.6420/45 range. Pullback from session highs in USD/JPY has pressured the USD in recent trade aiding NZD/USD which has printed a fresh monthly high.
- AUD/NZD has broken through its 50-day EMA as bears look to turn the bullish tide, the pair failed to clear its 200-day EMA earlier in the week, last printing $1.0845.
- NZD/JPY is ~0.7% firmer today, as pre-BOJ USD/JPY flows dominate, last printing at ¥82.95. Bulls look to target ¥83.48 the 20-day EMA.
- Dec Card Spending was on the wires this morning, Retail spending printed at -2.5% and Total spending was down 1.2%.
- Wider focus remains on the BOJ rate decision today, which will be the main driver of risk appetite today.
US TSYS: J.P.Morgan Flag The Need For Concession In 20s To Facilitate Smooth Supply
Ahead of Wednesday’s 20-Year Tsy auction J.P.Morgan note that “20-Year yields have declined roughly 13bp since the December auction. Along the curve, the 10s/20s/30s butterfly is roughly unchanged over this period, but remains near the richest levels of the past year. Though much of the richening we’ve observed since last summer has been justified by the improved liquidity conditions as Treasury has right-sized 20-Year auction sizes relative to surrounding tenors, the 20-Year sector appears somewhat rich on the fly after adjusting for the level of 20-Year yields, the shape of the 10s/30s curve, and HG spreads.”
- “With intermediate Treasuries looking somewhat rich to fair value, and the 20-Year sector looking rich on the curve, we think tomorrow’s auction will require some further concession in order to be digested smoothly.”
