AUSTRALIA DATA: Trimmed Mean Back In Band As Services Below 4%
Q1 headline and underlying inflation printed 0.1pp higher than expected but the trimmed mean at 2.9% y/y is below the top of the RBA’s 2-3% target band for the first time since Q4 2021. The data is close to the RBA’s expectations and at this stage consistent with inflation sustainably remaining within the band. Thus, another 25bp rate cut to 3.85% is likely on May 20, assuming that easing is consistent with the RBA’s updated outlook.
Australia CPI inflation y/y%
- Q1 trimmed mean CPI rose 0.7% q/q to be up 2.9% y/y, down from the upwardly revised Q4 at 3.3% y/y.
- Domestically-driven services inflation moderated to 3.7% y/y in Q1 from 4.3% with core services at 3.3% y/y after 4.2% y/y, the lowest since Q1 2022, which should reassure the RBA. Also, the moderation was broad based, which is important for sustainability. However, non-tradeables inflation rose 0.1pp to 3.2% y/y.
- Tradeables continued to provide disinflationary pressure falling for the third straight quarter down 0.4% q/q bringing the annual rate to 0.9% from 1.1%. Good prices rose 1.0% q/q though to be up 1.3% y/y after 0.8% y/y.
Australia goods vs services inflation y/y%
- Headline rose 0.9% q/q & 2.4% y/y, in line with Q4’s annual rate. It continues to be impacted by government electricity rebates and the ABS said that electricity prices rose 16.3% q/q in Q1 due to Brisbane households already using the $1000 subsidy. Also, the impact of the federal government’s relief was less in Q1 than Q4.
- Food and non-alcoholic beverages rose 1.2% q/q driven by fruit & vegetables because of less supply.
- Education rose 5.2% q/q as higher costs were passed on and tertiary fees indexation (+3.6%).
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AUD: Recent Ranges Still Holding, Positioning Biased For Lower A$ Levels
AUD/USD saw a brief dip to 0.6269 amid earlier risk off, but we are back near 0.6285/90 in latest dealings. Friday ranges (0.6312 - 0.6281) were tight considering the moves in Equities and US rates. A higher than expected print in the PCE data on Friday saw some significant moves lower in both equities and US yields. These moves have extended today, amid tariff/US growth fears, but spill over to the AUD remains fairly limited. The A$ is lagging yen gains though.
- More broadly, AUD/USD price action remains pretty directionless in the short term with the currency caught between wanting to go lower on negative risk sentiment and lower stocks, but with US yields also moving lower this has seen the USD also come under pressure.
- While stocks remain under pressure the bias may be for the AUD to continue to trade heavy, with scope for sellers to emerge towards 0.6300/10 on the day and a break of the support around 0.6250 could see momentum begin to pick up.
- Ultimately AUD/USD still seems stuck in a wider 0.6200 - 0.6400 range for now.
- This week we have the RBA but with the market not expecting any moves until we get more information from the quarterly CPI, attention will turn again this week to US data.
- Trumps tariffs will be front and centre but with lots of negative sentiment already in the price there is a high bar to exceed expectations. Hence the ISM prints this week particularly Services and then NFP will offer the most potential for movement.
- CFTC weekly data shows leveraged funds and Asset managers both continued to add to their respective AUD shorts, see the chart below.
Fig 1: AUD CFTC Positioning
Source: MNI - Market News/Bloomberg
CHINA: Gradual Recovery Continues with PMIs.
- The ongoing, gradual improvement in economic data was evident in today’s March PMI release.
- The Manufacturing PMI for March edged up to +50.5, from +50.2 in February, ahead of expectations.
- This was the highest reading since March last year.
- New orders were very strong, rising +51.8
- Large enterprises’ contribution was the biggest component.
- The employment component slipped to +48.2, from +48.6.
- The Non-manufacturing PMI improved also rising to +50.8, from +50.4 prior.
- Within the Non-manufacturing, the largest positive contributor was Business activity expectations which rose do +57.2, from +56.6.
- Employment contribution within non-manufacturing softened too from +46.5 in February, to +45.8.
- The data is consistent with the message coming from last week’s Boao Forum.
- The former deputy governor of the PBOC Hu Xiaolian to reporters that the “PBOC is spending more time to observe before cutting the reserve requirement ratio and rates.”
- Data has been slowly improving in China as the impact of stimulus measures is being felt.
CHINA PRESS: China To Buy CNY520 Billion A-shares Of State Banks
China’s four major state-owned banks announced plans on Sunday to raise up to CNY520 billion via A-share placements to boost core tier-one capital, Shanghai Securities News reported. The Ministry of Finance will subscribe to CNY500 billion, with the remainder allocated to other state-owned entities, the newspaper noted. The plan includes Bank of China, China Construction Bank, Bank of Communications and Postal Savings Bank of China, raising CNY165 billion, CNY105 billion, CNY120 billion and CNY130 billion, the newspaper said.
