Australian Dollar Rises on Strong Capital Spending

02/23/2023

2 minutes read

2023.02.23 14:48

The Australian dollar rebounded on Thursday, after a 2-day slide in which lost 100 points. In European trade, AUD/USD is trading at 0.6830, up 0.37%. On Wednesday, the Australian dollar fell to 0.6794, its lowest level since Jan. 6.

Australian Capex rebounds in Q4

Australia’s private capital expenditure jumped 2.2% q/q in Q4 2022, rebounding from 0.6% in Q3 and above the estimate of 1.3%. Building capex sparkled with a 3.6% gain, after declining by 1.6% in the third quarter. The strong numbers pushed the Aussie higher on Thursday.

The capex release comes on the heels of wage growth, which slowed to 0.8% q/q in Q4 2022. This was lower than the 1.1% gain and the estimate of 1.0%. On an annualized basis, wage growth edged up to 3.3%, up from 3.2% but lower than the estimate of 3.5%. The RBA is keeping a close eye on wage growth, concerned that stubbornly high inflation could trigger a price-wage spiral that would entrench inflation expectations and complicate efforts to curb inflation.

FOMC minutes signal more rate hikes

The reiterated what we’ve been hearing from Powell & Co. for months. FOMC members said there were signs that inflation was heading lower but more rate hikes were needed to bring inflation back to the 2% target. The minutes noted that the labor market remains robust, which is contributing to continuing upward pressures on wages and prices.” It should be noted that the minutes are somewhat stale, given the blowout employment report and the jump in retail sales which were released after the February meeting. These releases point to a surprisingly resilient US economy and could mean that members will become even more hawkish.

An important takeaway is that although the vote to hike by 0.25% was unanimous, two members (Bullard and Mester) saw a case for a 0.50% increase. The markets widely expect another 0.25% hike in March, but the host of unexpectedly strong releases in recent weeks has raised the likelihood of a 0.50% move. We can expect market pricing to continue to shift as the US releases key data in the coming weeks ahead of the Mar. 22 meeting.