RBA Expected to Hold the Cash Rate at 0.10%

The Australian and New Zealand Dollars closed higher on Monday after recovering from a sharply lower opening. The rebound was helped by a mixed performance in the major U.S. equity markets with the tech-based NASDAQ Composite closing higher for the session.

Meanwhile, U.S. Treasury yields and the U.S. Dollar posted two-sided moves as investors continued to monitor the war in Ukraine and the impact of the rash of sanctions imposed on Russia.

On Monday, the AUD/USD settled at .7265, up 0.0032 or +0.45%. This was up from an intraday low of .7164. The NZD/USD finished at .6775, up 0.0031 or +0.45%. This was also up from an intraday low of .6674. The Invesco CurrencyShares Australian Dollar Trust ETF (FXA) closed at $71.97, up $0.25 or +0.35%.

Australian Economic News

Early Monday, the MI Inflation Gauge came in at 0.5%, up from 0.4% last month. Company Operating Profits rose 2.0%, lower than the 2.1% forecast and the previously reported 4.0%.

Private Sector Credit rose 0.6%, below the 0.7% forecast and the previously reported 0.8%.

Australian retail sales were surprisingly strong in January as shoppers weathered a surge in Omicron cases with aplomb, suggesting the economy maintained considerable momentum into the new year.

Data from the Australian Bureau of Statistics out on Monday showed retail sales climbed 1.8% in January to A$32.5 billion ($23.3 billion), the second highest level on record and easily beating forecasts of a 0.4% gain.

Australia Current Account Shrinks, but Net Exports Less of a Drag

Australia’s current account surplus shrank sharply last quarter as imports outstripped exports and hefty dividend payments flowed offshore, though net exports were still a much smaller drag on growth than first thought.

Data from the Australian Bureau of Statistics on Tuesday showed the current account surplus narrowed to A$12.7 billion ($9.22 billion), from A$22 billion in the third quarter and compared market forecasts of A$14.9 billion.

New Zealand Economic News

New Zealand business confidence deteriorated sharply in February, reflecting the widespread anxiety about the impact to Omicron, survey results from ANZ showed on Monday.

The business confidence index declined significantly to -51.8 in February from -23.2 in December. The own activity index dropped moderately by 14 points to -2.2. Activity indicators were weaker across the board.

Short-Term Outlook

At 03:30 GMT, the Reserve Bank of Australia (RBA) is expected to hold the cash rate at 0.10% on Tuesday. The latest Reuters polls shows economists now expect a rate hike in the third quarter of this year, but the Russia-Ukraine conflict may cloud this outlook.

The RBA has been at odds with the market since late last year shows five 25-basis-point rate hikes are priced by the end of 2022, while RBA Governor Philip Lowe continues to emphasize patience on policy. In a recent speech, he said that while there is a possibility of a rate rise this year, it is plausible a hike may be a year or more away.