RBNZ Governor Orr Causes Decline of the Kiwi in Asia Market News

Highlights

• The monthly CPI indicator in Australia influences the future interest rate decisions of the RBA.
• Lower-than-anticipated inflation figures in Australia led to a decline in the AUD/USD to an early Wednesday low of $0.65314.
• Despite maintaining the cash rate at 5.50%, the RBNZ's inflation forecast caused the NZD/USD to plummet towards $0.61000.  

Australian Monthly CPI Report Impacts RBA Rate Hike Speculations

The release of the Australian Monthly CPI Report attracted investor attention ahead of upcoming US inflation figures. Despite economists predicting a 3.6% inflation rate, January's Australian annual inflation rate held steady at 3.4%. The potential for an increase in consumer price inflation might have led the Reserve Bank of Australia (RBA) to consider raising interest rates in March.

Soft CPI Numbers Dampen Expectations of RBA Rate Adjustment

However, lower-than-anticipated figures likely tempered expectations of an RBA rate hike. Nevertheless, sustained inflationary pressures could keep the RBA on hold during the first half of 2024.

Key Contributors to Inflation

According to the Australian Bureau of Statistics (ABS):

• Housing (+4.6%), food & non-alcoholic beverages (+4.4%), alcohol & tobacco (+6.7%), and insurance and financial services (+8.2%) were significant contributors.
• Food and non-alcoholic beverage prices increased, with the annual inflation rate rising from 4.0% in December.
• The annual inflation rate for insurance and financial services remained steady at 8.2%.
• However, inflation rates for housing (previously 5.2%) and alcohol & tobacco softened (previously 6.8%), albeit slightly.

Monthly CPI Indicator Exclusions

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

Market Reactions

The AUD/USD declined by 0.14% to $0.65340 in response to the Monthly CPI Indicator, reaching a session low of $0.65314.

AUDUSD 3 Minute Chart 280224

The ASX 200 initially reacted positively to the softer inflation numbers but later turned negative. On Wednesday, it closed down 0.21% at 7,647.0. Losses in the big four banks outweighed gains in the mining sector, leading to the ASX 200 ending in negative territory.

BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) saw slight increases of 0.02% and 0.48%, respectively, while Fortescue Metals Group Ltd. (FMG) rose by 0.72%.

ASX200 3 Minute Chart 280224

RBNZ Decision and Kiwi Dollar Impact

Conversely, the NZD/USD experienced significant losses, dropping 0.86% to $0.61173. The Reserve Bank of New Zealand (RBNZ) maintained the cash rate at 5.50% but adopted a less hawkish stance. RBNZ Governor Adrian Orr noted that risks to the inflation outlook had become more balanced, leading to a decline in the Kiwi dollar to a session low of $0.61108.

NZDUSD Hourly Chart 280224

Asian Equity Markets

In Asian equity markets, the Hang Seng Index and the Nikkei declined by 0.38% and 0.17%, respectively. Investor caution prevailed ahead of US inflation data on Thursday and a gathering of lawmakers in Beijing next week to discuss the Chinese economy and policy.