Asia Market News: RBNZ Governor Orr Sinks the Kiwi

Aussie Monthly CPI Indicator Curbs Bets on an RBA Rate Hike

On Wednesday, the Australian Monthly CPI Report drew investor interest before US inflation numbers on Thursday. The Australian annual inflation rate remained at 3.4% in January. Economists forecast an inflation rate of 3.6%. An upward trend in consumer price inflation may have prompted the RBA to consider a hike in interest rates come March.

The softer-than-expected numbers likely reduced bets on an RBA rate hike. However, persistent inflationary pressures may keep the RBA in a holding pattern through the first half of 2024.

According to the ABS,

• Housing (+4.6%), food & non-alcoholic beverages (+4.4%), alcohol & tobacco (+6.7%), and insurance and financial services (+8.2%) were the main contributors.
• Prices for food and non-alcoholic beverages rose, with the annual inflation rate up from 4.0% in December.
• The annual inflation rate for insurance and financial services was unchanged at 8.2%.
• However, inflation rates for housing (Dec: 5.2%) and alcohol & tobacco softened (Dec: 6.8%), albeit modestly.

The Monthly CPI Indicator excluded holiday travel, fruit & vegetables, and automotive fuel. Notably, prices for automotive fuel increased by 3.1% in the 12 months to January, down from 5.3% in the 12 months to December.

On Wednesday, the AUD/USD was down 0.14% to $0.65340. The Aussie dollar responded to the Monthly CPI Indicator, sliding to a session low of $0.65314.

The ASX 200 responded positively to the softer inflation numbers before falling into negative territory. On Wednesday, the ASX 200 was down 0.21% to 7,647.0. Losses across the big four banks overshadowed gains across the mining sector, leaving the ASX 200 in negative territory.

BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) were up 0.02% and 0.48%, respectively. Fortescue Metals Group Ltd. (FMG) rose by 0.72%.

RBNZ Keeps the Cash Rate at 5.50% But Sinks the Kiwi Dollar

However, the NZD/USD suffered heavier losses, sliding 0.86% to $0.61173. The RBNZ held the cash rate at 5.50% on Wednesday but delivered a less hawkish stance. RBNZ Governor Adrian Orr said that risks to the inflation outlook had become more balanced, crashing the Kiwi dollar to a session low of $0.61108.

The Asian Equity Markets

In the equity markets, the Hang Seng Index and the Nikkei were down 0.38% and 0.17%, respectively. Caution prevailed as investors await US inflation numbers on Thursday and lawmakers gathering in Beijing next week to discuss the Chinese economy and policy.