The Australian dollar (AUD) recovered, despite the release of disappointing economic data from Australia on Thursday. The AUD had previously weakened due to the recovery of the US dollar (USD).
Reserve Bank of Australia (RBA) and inflation
The AUD got a boost from a hawkish RBA. RBA Governor Michele Bullock stressed that the current monetary policy is restrictive enough and that rate hikes are weighing on demand, particularly with stubborn services inflation. Governor Bullock warned that caution was needed when using higher interest rates to combat inflation so that the unemployment rate doesn’t increase as a result.
Australia’s Monthly Consumer Price Index (CPI) for October came in at 4.9%, down from the previous reading of 5.6% in September and slightly lower than the anticipated reading of 5.2%. Australia’s seasonally adjusted Retail Sales data showed that the monthly readings for October dropped by 0.2% against the forecast of a 0.1% increase and the previous reading of 0.9%.
Australia’s Private Capital Expenditure declined in Q3
Australia’s Private Capital Expenditure was down to 0.6% in Q3, and much lower than the previous growth of 2.8% and the expected rise of 1.0%. The data shows a fall in both current and future capital expenditure plans within the private sector. This could ease inflationary pressures and could reduce the possibility of an interest rate hike by the RBA.
China’s Manufacturing and Non-Manufacturing PMI decreased
China’s NBS Manufacturing PMI for November dropped to 49.4 from the previous reading of 49.5. The market consensus was for a rise to 49.7. The Non-Manufacturing PMI dropped to 50.02, below the expectation for a 51.1 reading and the previous figure of 50.6. The gloomy PMI data could encourage talk about further stimulus, which will be supportive of the Australian dollar.
The reason that Chinese data is important for the Australian dollar is because China is Australia’s biggest trading partner, so the health of the Chinese economy affects the value of the Aussie. When the Chinese economy is growing then it purchases more raw materials, goods and services from Australia, which pushes demand for the AUD and strengthens its value. On the other hand, when the Chinese economy is not doing very well, and Chinese data is downbeat, then the Aussie weakens.
US GDP annualised data rose by 5.2%
According to the US Bureau of Economic Analysis, US Gross Domestic Product annualised data beat expectations. The US GDP data showed an increase in the value of the final goods and services produced in the United States in the third quarter. The US Dollar Index (DXY) managed to stop its four-day losing streak on Wednesday, but failed to keep its position on Thursday.
What’s coming up
Further data expected from the US includes the weekly Jobless Claims for the week ending on the 24th of November, with an expected rise to 220K from the previous 209K. The Core Personal Consumption Expenditure (PCE) Price Index for October will also be released, and markets expect a slowdown in consumer inflation. The annual rate is expected to drop from 3.7% to 3.5%.