Australian Central Bank Signals No Change in Stance

Although significant progress was made on the economic activity front during the fourth quarter following the third quarter GDP contraction, policymakers at the Reserve Bank of Australia intend to leave low interest rates in place for some time.  The weakening Australian dollar was cited as a positive development for the economy, especially amid the uptick in resource exports and the greater traction for inflation which remains “well anchored” according to the Monetary Policy Committee.

However, there are some soft spots in the economy, mainly attributed to weaker investment in the mining and minerals sectors while consumer spending remains subdued in light of weak income growth.  On balance the minutes were optimistic, however, risks to the outlook remain, especially if the local currency appreciates.  The Australian dollar fell after the announcement, with AUDUSD edging lower overnight.

Sharply contrasting with the previous session’s trade data, Japanese manufacturing activity for the month of February is showing sustained momentum higher in a sign that the economy is continuing to benefit from the sharp depreciation in the currency during the fourth quarter.  According to preliminary figures published by Markit Economics, the flash purchasing managers’ index climbed to 53.5 during the month of February.  This compares with the 52.7 recorded back in January with February’s advance data marking the highest manufacturing expansion reading in 35-months.

Drivers of this momentum included a major uptick in new orders for export along with the first backlogs in 14-months, evidence of the pickup in business.  This was further reflected by the business confidence component rising to a record high.  After rising modestly on Monday, USDJPY is extending gains in early Tuesday trade.