Daily Market Commentary 5th April 2023

The RBA surprised markets by leaving rates unchanged, hitting the pause button on rate rises, considering that ‘peak inflation’ may have arrived. This is a very brave assumption, with OPEC’s decision to cut oil production by more than 1 million barrels/day, which will only elevate energy prices and feed directly into inflation numbers. The RBA was late to the party and first to leave, with their dovish monetary policy, in these highly inflationary times. The political pressure on the RBA is huge, as households are heavily indebted and rate rises hit hard, smashing the consumer. The AUD reacted accordingly and sunk back towards 0.6700, while the NZD looked to regain 0.6300, despite a crushing business confidence number (minus 66) released yesterday.

In the US , the Jolt job openings fell below the key 10 million mark, hinting that the labour market may finally be cooling. This is offering some relief offering some relief to the Federal Reserve, but the energy price rises will be of great concern. The slew of weak economic data continued, with Factory Orders contracting 0.7%, while ISM Manufacturing also fell further into negative territory. Central Banks are hoping inflation has peaked and that they can now dial back the interest rate rises, that have afflicted bank balance sheets and tightened the monetary screws. The surprise OPEC intervention will test that ‘peak inflation’ narrative. The EUR pushed up to 1.0940, while the GBP surged above 1.2500, following a Bank of England projection of continued and persistently high inflation.

Attention will now turn to the RBNZ rate decision today and whether they will raise rates a further 25 basis points, following the Fed, or take the more ‘dovish’ route of the RBA?