With so many exciting decisions last week, it was easy to overlook the fact that the Aussie held up quite well in the face of renewed US Dollar strength. Economists at Commerzbank analyze AUD outlook.
Exciting days for the Aussie
The new monthly inflation figures will kick things off on Wednesday. The Bloomberg consensus is looking for a slight increase to 3.5% YoY. In my opinion, it is less important whether the final number is 3.4%, 3.5% or 3.3%. The monthly numbers are difficult to interpret anyway, as only part of the overall indicator is updated each month.
In the short term, a downward surprise could put pressure on the Aussie. In the medium term, however, two pieces of information are likely to be more relevant: 1) The quarterly indicator is likely to take another dive in Q1 and settle in the 3.5% range or even slightly below. And 2) the latest data suggest that disinflation has slowed for the time being. This is only logical, as we have seen a similar development in the other G10 countries, and most of the base effects in Australia should now be waning.
This should be an argument for the RBA to maintain its cautious stance. Therefore, even after today's inflation figures, we would be cautious about betting against the Aussie in the medium term. Unless, of course, the figures surprise to the downside. That would change the recent trend, even if it is not our base case.
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