AUD/USD Jumps on Inflation, China PMIs

03/01/2023

1 minute read

2023.03.01 11:56

The Australian dollar shows strong gains for the first time in a week. trades at 0.6764 in Europe, up 0.53%.

Australia’s inflation eases.

Australia’s fell to 7.4% in January, down from 8.4% in December and below the estimate of 8.0%. Australian Treasurer Jim Chalmers said he was “cautiously hopeful” that inflation has peaked, but inflation remained the economy’s biggest challenge. The GDP report was not as positive, with a gain of 0.5% q/q in Q4, below the Q3 gain of 0.7% and the forecast of 0.8%. Annualized GDP slowed to 2.7% in Q4, down sharply from 5.9% in the third quarter.

The RBA’s rate-hike cycle has slowed economic activity and is responsible for the drop in inflation and the soft . The central bank will have to consider how aggressive it should be with regard to future rate increases. Inflation needs to come down much further, but further rate hikes raise the risk of the economy tipping into a recession. The RBA is expected to raise rates by 25 basis points next week but may pause at the April meeting if the data, particularly inflation, allows the Bank to take a breather.

The Aussie received a boost today from strong Chinese PMIs. and PMI improved in February and beat expectations, with readings of 52.6 and 56.3, respectively. A reading above 50.0 indicates expansion. China is Australia’s largest trading partner, and a stronger Chinese economy means greater demand for Australian exports, which is bullish for the Australian dollar.

China’s transition from zero-Covid to reopening the economy has gone well so far. A rebound in China is essential not just for China and the region but also for the global economy.