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To extend its upside, AUD needs to overcome a major resistance at 0.71, a high on 11 August. AUD appreciated 0.9% to 0.71 after Australia’s CPI inflation was stronger at 7.8% YoY in 4Q22. Consensus had expected inflation to rise to 7.6% YoY from 7.3% in 3Q22. The Reserve Bank of Australia should deliver its fourth 25 bps hike to 3.35% when the monetary policy committee returns on 7 February. The 2Y bond yield firmed 10.2 bps to 3.082%, while the 10Y rose 4 bps to 3.504%. The All Ordinaries Index initially plunged 0.5% on the inflation data before ending the session with a lesser 0.3% loss. The stock index is wedged between 7725 (a high at the end of April) and a trendline support at 7660. More RBA rate hikes may not be positive for the AUD in the medium term. The IMF warned in late December that Australia was at risk of a “sizeable” housing market bust from price misalignments. According to the Guardian Essential poll, Prime Minister Anthony Albanese’s approval rating fell from 60% in December to 55% in January, its lowest since August.
CAD appreciated 0.2% to 1.34 per USD. The Bank of Canada delivered a smaller 25 bps hike to 4.50% after two 50 bps hikes in December and October, in line with expectations. The BOC prefers to pause based on its growth and inflation outlook. The central bank sees inflation slowing from 6.3% YoY in December to 3% by mid-2023 and 2% in 2024. It reckoned core inflation has peaked, citing three-month measures and reduced risks of a wage-price spiral. Believing that rate hikes are working to slow the economy, the BOC forecasts GDP growth slowing from a projected 3.6% in 2022 to 1% in 2023 and 1.8% in 2024. The BOC did not rule out a technical recession which Bloomberg consensus sees in 1Q23 and 2Q23 on negative investment growth and weak consumer consumption. USD/CAD mainly traded between 1.33 and 1.35 since 9 January. CAD bulls are wary that the Fed may keep the door open for another hike after its expected 25 bps hike at the FOMC meeting on 1 February.
Quote of the day
“Politicians are the same all over. They promise to build bridges even when there are no rivers.”
Nikita Khrushchev
26 January in history
Construction started on the Eiffel Tower in 1887.
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