Forex Investment and Currency Trading

In a relatively quiet week, all eyes will be on the Australian quarterly inflation numbers and the RBNZ decision.

Australia: In an otherwise quiet week finishing with the Anzac Day holiday, some of the suspense has been taken out of the quarterly CPI data on Wednesday because: (a) there is a pretty good forecast of the outcome from the monthly experimental inflation gauge; and (b) the RBA has already said: “CPI data for the March quarter…likely to show inflation of around 4 per cent … Underlying inflation … (is also) expected to rise.” That is, markets have already priced in a high quarterly number for headline and underlying inflation and the report may not contain much forward looking information to confirm or refute the RBA’s recent claim that it had shifted back to neutral because domestic demand may be slowing sufficiently to bring inflation back into the 2%-3% range as a cycle-average. It is still worth discussing trends within the aggregate CPI, though. Gas and fruit/vegetable prices rose 5% and 4% respectively in 1Q 2008 while rents may have risen by up to 2% and higher mortgage rates will have added to the ‘house purchase’ component of the CPI, despite flatter or even falling house prices in the quarter. Also of interest is the dichotomy between non tradables or somatic inflation which last quarter accelerated to 4.2% from 3.5%, and tradables inflation (goods traded on world markets, affected by the AUD but not so much by RBA policy) which last quarter accelerated to 1.4% yoy from 1.3%. The AUD TWI was just flat in 1Q so higher global prices for imports of raw materials will probably mean another uptick in tradables inflation. Note, that another low number (-1.0% qoq in 1Q 2007) drops out of the year on year comparison for tradables inflation, so it could easily reach 3% this quarter.

New Zealand: No significant data ahead of the April 24 RBNZ decision on April 24, where there is some chance of a diluted statement based on well behaved 1Q inflation and a softening in real side indicators. In the March 6 decision, RBNZ Governor Bollard had said: “we expect that the OCR will need to remain at current levels for a significant time yet”. This is not one of the four decisions each year that is accompanied by a new monetary policy statement and revised set of forecasts but it is worth noting that share market and credit market conditions (represented by the bank bill-OIS yield spread) are little changed from March 6 and the currency is 3% lower. Market does not expect too much of a language change at this next meeting, but acknowledge that the risk has increased.