Minutes of the RBA April 4 meeting showed board members considered the case for another 25 basis point increase as inflation “remained too high and the labour market was very tight”. The board also considered the faster-than-expected pickup in population growth and wage growth before opting to pause the rate hikes.
China GDP and Consensus Global Growth Expectations
Source data: Bloomberg; Chart prepared in Excel
Still, “it was important to be clear that monetary policy may need to be tightened at subsequent meetings”, suggesting that the Australian central bank may not be done just yet with tightening. Key focus is now on the Australia January-March CPI due April 26 – persistent inflationary pressures could boost the odds of a rate hike at the RBA’s May 2 meeting. The market is pricing in the RBA Cash Rate at 3.73% by August (Vs 3.6% now), up from 3.67% on Monday.
FX Speculative Positioning
Furthermore, data released on Tuesday Asia morning showed the Chinese economy grew 4.5% on-year in the January-March quarter, well above 4% expected, and 2.9% in the previous quarter. Industrial production rose 3.9% in March Vs 4% forecast, up from 2.4% in February, retail sales 10.6% last month Vs 7.4% expected, and above 3.5% in February, while fixed asset investment grew 5.1% in March Vs 5.7% expected, and 5.5% in February.
AUD/USD 240-minute Chart
Broadly, China macro data have beaten expectations in recent weeks — the Economic Surprise Index for China this month hit the highest level at least since 2014 – reflecting the positive spillovers from the economic reopening. Given that China is Australia’s biggest export market, any improvement in China’s growth outlook could boost Australia’s growth prospects. Speculative positioning in AUD is short, and any repricing higher of RBA rates could be enough to trigger the unwinding of some of those short positions.
AUD/USD Daily Chart
On technical charts, AUD/USD has this month held above quite a strong support at the late-March low of 0.6625. However, the pair has been capped under a stiff hurdle around the 200-day moving average, roughly coinciding with the early-April high of 0.6795. AUD/USD needs to cross above the ceiling of around 0.6800 for the outlook to improve.