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RBA April Minutes - all eyes on Q1 CPI to determine timing of first rate hike

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RBA April Minutes - all eyes on Q1 CPI to determine timing of first rate hike

  • AUD: The RBA’s April Policy Board Minutes released yesterday confirm the Bank’s hawkish shift with its acknowledgement that inflation pressures could persist for longer than the Bank had previously expected. The Minutes note that “members discussed the direct and second-round effects of the recent increase in fuel, food and other commodity prices; these would result in a further lift in inflation over coming quarters. As a result, non-labor input cost pressures were thought likely to persist for longer than previously expected”. Moreover, the Bank’s liaisons also signal that firms have increased selling prices or will be increasing prices in the coming months and are also increasing wages across individual pay arrangements. With the Australian labor market expected to improve further, wages growth expected to pick-up and inflation expected to overshoot the 2-3% in the March quarter, the Bank notes that “these developments have brought forward the likely timing of the first increase in interest rates”.  
  • AUD: Citi analysts however indicate that although April marks a shift for the RBA to acknowledging that the timing of the first rate hike has been brought forward, the Board has yet to give clarity on when the lift-off will occur. Consensus has firmly shifted to June as the timing of the first rate hike because it would occur after the Q1 CPI, WPI and National Account reports. Moreover, the Minutes note that “wages growth has picked up but, in aggregate terms, are below rates likely to be consistent with inflation being sustainably at the target”. The Bank had previously noted that 3% wages growth would be consistent with inflation sustainably within the target. Thus, Citi analysts still prefer August as the timing of the first rate hike but believe that the Bank could be more concerned about inflation, and thus, the May and June Policy Board meetings could be live, depending on the details of the Q1 CPI report on April 27. 


Yen intervention calls grow louder but is anyone listening?

  • JPY: In latest to comment, BoJ Governor Kuroda ramps up warnings on the sharp Yen weakness during a parliamentary session earlier this week by saying "recent yen moves have been very rapid….that can cause trouble for companies when they make their business plans and we will need to take into account negative factors like these.” Finance Minister Suzuki also weighs in, reiterating his view that excessive and disorderly swings in the currency, hovering at a 20-year low, can be negative. Last week he had characterized sudden changes as "very problematic” and said a weak Yen could be bad for the economy (that is now receiving widespread local press coverage). Later, chief cabinet secretary Matsuno also indicates that they are watching FX moves, including JPY, with vigilance. This however fails to stop USDJPY rising to a two-decade above the 129.00 handle in early Asian trading this morning. 


Week Ahead

  • EUR: France’s second round of Presidential Election – the focus ahead of the second round will be the TV debate on 20 April. In 2017Citi analysts’ base case is a narrow(er) victory for Macron on 24 April.
  • EUR: Euro Area: recession watch – Euro area consumer confidence and PMIs for April will be in focus this week. Euro Area: Consumer Confidence, April: Citi Forecast -20.0, Consensus -20, Previous -18.7; France: PMI Manufacturing, April: Citi Forecast 54.0, Consensus 53.0, Previous 54.7; France PMI Services, April: Citi Forecast 56.0, Consensus 56.5, Prior 57.4; German PMI Manufacturing, April: Citi Forecast 54.5, Consensus 54.5, Prior 56.9; German PMI Services, April: Citi Forecast 54.0, Consensus 55.5, Prior 56.1; Euro Area: PMI Manufacturing, April: Citi Forecast 54.5, Consensus 54.6, Previous 56.5 (still sustained by long supplier lead times); Euro area PMI Services, April: Citi Forecast 54.0, Consensus 55.0, Previous 55.6; Euro area PMI Composite Output, April: Citi Forecast 52.0, Consensus 53.9, Previous 54.9.
  • JPY: Debate over the USD/JPY trend has sparked interest in Japan’s external balances. Citi analysts conclude that Japan’s current account can probably stay in surplus in 2022, barring spikes from current levels in energy (oil, natural gas, and coal) prices. This is premised on energy commodity prices staying at current levels. The team calculates a deficit of c¥13trn for goods and services balance in 2022. This is on par with largest deficit in the current statistical series, which dates from 1996 (¥13.5trn, recorded in 2014). However, the income balance is sure to be larger than ¥13trn, making a current account deficit unlikely unless commodity prices spike further from current levels. That said, in data to be released this week, Japan’s March trade deficit is set to decrease modestly — the customs-clearance trade balance is likely to come to a ¥490.3bn deficit before seasonal adjustment and a ¥840.1bn deficit after it in March (-¥669.7bn and -¥1.0314trn, respectively in February).
  • GBP: UK: How challenged is the consumer? – UK GfK Consumer Confidence, April: Citi Forecast -34.0, Consensus 33.0, Previous -31.0 (UK households hit, signaling recession?); Retail Sales, March: Citi Forecast 0.0% MM, Consensus --0.1% MM, Previous -0.3% MM (fuel prices weighing); Ex Auto Fuels: Citi Forecast 0.2% MM, Consensus 0.0% MM, Previous -0.7% MM; UK PMI Manufacturing, April: Citi Forecast 55.0, Consensus 54.0, Previous 55.2 (output falling back); UK PMI Services, April: Citi Forecast 56.0, Consensus 60.0, Previous 62.6.
  • GBP: BoE: Bailey in focus – expect substantive comments from Governor Bailey this week as part of a week of macro events at PIIE. Last time out, Bailey struck a dovish tone warning on the risks to growth and Citi analysts expect a similar sentiment this week. 
  • NZD: NZ Q1 CPI: Citi forecast; 2.0%, Previous; 1.4% - Citi analysts forecast Q1 CPI data to produce the second largest quarterly increase, following the 2.2% gain in Q3 2021 and subsequent still high 1.4% gain in Q4 2021. On a quarterly forecast of 2.0%, yearly inflation would rise from a very high 5.9% to an even higher 7.2% which is close to the MPC’s expectation of 7% CPI inflation in H1’22 that was contained in the record of last week’s OCR meeting. 
  • CAD: Canada CPI NSA MoM (Mar) – Citi: 1.0%, median: 1.0%, prior: 1.0%, CPI YoY – Citi: 6.2%, median: 6.2%, prior: 5.7% - Citi analysts expect headline CPI to rise 1.0%MoM and climb to 6.2%YoY in March, which would be more or less consistent with ~6%YoY inflation in H1’2022 forecast by the BoC in the April MPR.


This is an extract from the Daily Currency Update, dated April 20, 2022. Please approach a Citigold Relationship manager if you would like more information. For the latest CitiFX house views and strategy, please click here -

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