Australian Producer Price Index Suggests More from the RBA

It is a busy morning on the Asian economic calendar. However, while investors await the Bank of Japan’s monetary policy decision, Australian wholesale inflation figures drew interest following the softer CPI Report on Wednesday.

The Australian Producer Price Index increased by 5.2% in Q1 year-over-year versus a forecasted 5.0%. In Q4, the Producer Price Index increased by 5.8%. Quarter-on-quarter, the Index rose by 1.0% versus 0.7% in Q4. Economists forecast a 0.8% increase.

According to the ABS,

• Electricity and gas supply (+13.3%), the output of building construction (+1.1%), and education and training services (+3.7%) were the main contributors.
• However, falling prices in petroleum refining and fuel manufacturing (-7.2%), furniture & other manufacturing (-5.8%), and computer & electronic equipment manufacturing (-3.5%) contributed to the softer annual inflation rate.

Today’s stats provided further guidance on what to expect from the RBA on Tuesday. After the decision to stand pat earlier this month, RBA Governor Philip Lowe warned that the pause did not signal the end to the monetary policy tightening cycle.

With wholesale inflation a precursor to consumer price inflation, today’s numbers should close the door on a Tuesday RBA interest rate hike. However, the numbers suggest sticky inflation that may force the RBA to deliver a hawkish pause. Economists forecast the RBA to stand pat for a second consecutive month.

Other stats from Australia included private sector credit, which increased by 0.3%, in line with forecasts.

AUD/USD Reaction to Australian Producer Price Index Numbers

Ahead of the PPI report, the AUD/USD fell to an early low of $0.66204 before rising to a pre-stat high of $0.66361.

However, in response to the producer price index and private sector credit numbers, the AUD/USD fell to a post-stat low of $0.66328 before rising to a high of $0.66419.

This morning, the Aussie was up 0.16% to $0.66407.

Next Up

Looking ahead to the US session, it is a busy day on the US economic calendar. The all-important Core PCE Price Index numbers and personal income and spending figures will influence.

This morning, the probability of a 25-basis point Fed interest rate hike in May stood at 87.4%, up from 72.2% on Thursday, according to the CME FedWatch Tool. Hotter-than-expected inflation figures and a pickup in income and spending could fuel the bets on another hike in June. There is a 24.8% chance of a 25-basis point June interest rate hike, up from 13.7% on Thursday.

Away from the economic calendar, US corporate earnings will also influence market risk sentiment. Big names on the US earnings calendar include Exxon Mobil (XOM) and Chevron (CVX).