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Australia's economy is starting to overheat

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What’s new?

Australia's core inflation accelerated to the fastest pace since 2009 at 5.1% (Q1, YoY). Swap traders are now pricing the first hike in the next Tuesday’s RBA meeting, next Tuesday's swap rate is priced at 0.2178% right now, suggesting 15 bps rate hike and next June meeting's swap rate is 0.5630% suggesting a 35 bps rate hike. The inflation number intensifies pressure on the RBA to abandon its traditional political caution and initiate a rate hike before the election date in 21th of May. RBA is lagging behind its peers with a current cash rate of 0.1%.

Current keys rates with major central banks:

  • RBA: 0.1%
  • BOE: 0.75%
  • FED: 0.33%
  • RBNZ: 1.5%

EUR sinks under 1.07

The EUR reached its lowest since 2017 as Russia said it mays cut gas flow to Europe hurting the region’s growth. The EUR weakness is more explained by data from the other side of the Atlantic.

  1. Wednesday’s mixed corporate earnings
  2. FED rate hike expectations

We could see soon a reverse of the bearish trend as monetary policy normalize and with all effort put by officials to find a peace agreement in Ukraine.

What’s in the pipe?

  • Bank of Japan monetary policy decision, Thursday
  • U.S. 1Q GDP, weekly jobless claims, Thursday
  • ECB publishes its economic bulletin, Thursday

FX rates

USD/JPY @ 127.68 - bullish trend

EUR/USD @ 1.0651 - Bearish trend

GBP/USD @ 1.2594 - Bearish trend

AUD/USD @ 0.7185 - Bearish trend

USD/CNH @ 6.5832 - Bullish trend

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