Fed and RBA central bankers attract attention

Summary:

• Australian dollar moves somewhat higher this morning after a Debelle’s speech was not as dovish as expected
• “Fed is at, or close to, the inflation and jobs goals”, Fed’s Clarida says
• Japan’s machinery orders rebound for the first time in four months

RBA’s Debelle doesn’t strike dovish tone

The Australian dollar is gaining roughly 0.2% against the US dollar in early European trading being the best performing major currency now. Its strength came following a speech of RBA’s Debelle as he refrained from striking the dovish tone (markets had expected such a scenario after the recent RBA’s change in rhetoric). RBA’s deputy governor said that the jobs market was surprisingly strong while leading indicators were solid. He sees a differentiation between strength in jobs and a weakness in output and how it resolves in coming months will be important for a future path of interest rates. According to him the Reserve Bank of Australia needs higher wage growth to achieve its inflation target (needless to say that the relationship between wages and inflation has weakened recently and this has been the case in other economies as well). Debelle also discerned rising wages in other economies like the US, the UK or Japan which could signal a more synchronized impulse. However, the problem for central banks all around the world is the fact that higher wage pressure has recently failed to translate into higher domestic-driven inflationary pressure, thereby some central banks have been unwilling to hike rates. Let us recall the latest Fed’s meeting where Jerome Powell admitted that even higher wage growth could not be an argument for higher rates (he alluded to lower sensitivity of inflation to higher wage growth). Debelle also referred to the recent steps undertaken by the Chinese government suggesting that it could take some time before these steps’ results became apparent.

Technically the AUDUSD bounced off its important short-term support area placed slightly above 0.71. Bulls may want to head toward 0.7150 and this level could encourage some of them to cash in on their Aussie longs. Source: xStation5

More central bankers and Japanese data

Apart from the Debelle’s speech we also had some speakers from the Federal Reserve and the Bank of Japan. Namely, Fed’s Clarida said that the US economy was at, or close to, the inflation and jobs goals. He added that it was plausible the NAIRU was at or below the current unemployment rate. In turn, Fed’s Quarles said the Fed was data-driven and the White House comments did not factor in to Fed’s decisions. The conclusion is the Federal Reserve is off the auto-pilot and there could be a high hurdle to convince the Board to lift rates once again. As such, we think that a balance of risks is undoubtedly tilted to the downside when it comes to where the Fed could go with rates from here. The last central banker who took the floor overnight was BoJ’s Kuroda who repeated his mantra that the 2% inflation target assisted in long-run currency stability and the BoJ was seeking to create conditions in which inflation accelerated in line with rises in corporate profits and gains. Finally he said that price growth was likely to hover around 1% because wages were not rising fast enough. In terms of macroeconomic data we got a preliminary reading of core machinery orders from Japan for February which increased 1.8% MoM, below the expected value of 2.8% MoM. Anyway, it was the first increase in four months and it was supported by solid demand in the manufacturing sector (orders from this sector jumped 3.5% MoM chiefly due to increased demand from oil, coal and metal product makers) which could be an encouraging sign. On top of that, overseas orders rose 19% MoM, recovering from an unprecedented 18.1% decline in January.

The USDJPY is stuck between 114.3 and 108.05 and technically one may expect that the pair could head lower toward the lower bound of the consolidation. Source: xStation5

In the other news:

• API reported that US crude inventories rose 4.1 million barrels last week while gasoline inventories plunged as much as 7.1 million barrels

• Italy cut its GDP forecast for 2019 to 0.2% from 1% making its 2.04% deficit target for this year virtually unattainable