The Reserve Bank of Australia looks well placed to be able to cut in February as Australian inflation comes in below market expectations. The US Federal Open Markets Committee is about to announce its first rate decision of the year, while the European Central Bank is on track to cut rates tonight.
In our bonus deep dive interview, ANZ FX Analyst Felix Ryan analyses market views and positioning for major currencies through 2025.
5 things to know in 5 minutes:
The US Federal Open Markets Committee is set to decide whether to cut or hold rates shortly after publication. Attention will then turn to PCE deflator and inflation readings for December. ANZ Head of G3 Economics Brian Martin is forecasting a monthly PCE deflator of 0.2% in the month, and 2.8% annually.
The other major global focus is what the European Central Bank decides to do with rates tonight. Brian expects a 25 basis point cut to 2.75%, on its way down to 1.5% by the end of the year.
Australia’s headline annual inflation rate dipped to 2.4% in the fourth quarter last year, from 2.8% in Q3 and lower than the market forecast of 2.6%. ANZ Senior Economist Catherine Birch says the RBA is well-positioned to cut rates 25 basis points in February, particularly due to falling trimmed mean inflation.
Catherine says that underlying inflation should continue to fall, particularly as housing inflation slows.
That lower headline inflation might now feed through to lower inflation expectations among consumers. ANZ Economist Sophia Angala says they appear to have already turned last week, according to the ANZ Roy Morgan Australia Consumer Confidence survey.
Cheers,
Bernard
PS: Catch you tomorrow with reaction to the FOMC’s decision, and the European Central Bank’s move tonight.
