The Australian Dollar (AUD) exhibited weakness, particularly against the Japanese Yen, amid a complex interplay of domestic economic data and global developments. The Reserve Bank of Australia (RBA) released its February Meeting Minutes, which underscored potential downside risks to the Australian economy. Meanwhile, retail sales in Australia showed a modest recovery, rising by 0.3% month-on-month (MoM) in January after a slight decline in December. Concurrently, the US Personal Consumption Expenditures (PCE) inflation report met expectations with a steady monthly headline of 0.3%, while various economic indicators from around the globe presented a mixed picture.
The RBA's February Meeting Minutes painted a cautious outlook for the Australian economy. The minutes, published two weeks post the interest rate decision, highlighted risks that could impact economic growth. This cautious stance contributed to AUD's vulnerability, particularly in the forex market against currencies like the Japanese Yen. The AUD/USD pair remained under pressure following the release of these minutes and the retail sales data.
In the United States, the PCE inflation report, a key measure of consumer price changes, aligned with market expectations, maintaining a 0.3% increase on a monthly basis. Meanwhile, the ISM Manufacturing Purchasing Managers' Index (PMI) registered at 50.3, just below the anticipated 50.5 and down from January’s 50.9. In contrast, S&P Global’s final Manufacturing PMI for February surprised positively at 52.7, improving from its preliminary reading and suggesting some resilience in manufacturing activity.
In China, the National Bureau of Statistics (NBS) reported improvements in both manufacturing and non-manufacturing sectors. The Manufacturing PMI rose to 50.2 in February from 49.1 previously, moving into expansion territory. Similarly, the Non-Manufacturing PMI climbed to 50.4 from January's 50.2, exceeding expectations set at 50.3. These positive readings provided a glimmer of hope for global supply chains and trade dynamics.
Australia's Retail Sales data offered some respite with a 0.3% increase in January following a 0.1% decline in December. However, consumer confidence remains fragile. The ANZ-Roy Morgan Australian Consumer Confidence Index fell to 87.7 from 89.8 the previous week, reflecting ongoing concerns among consumers.
Globally, risk sentiment improved as European leaders expressed support for security guarantees for Ukraine, leading to a weakening of the US Dollar. This development contributed to an overall stabilization of market sentiment despite ongoing geopolitical tensions.
The US Dollar Index (DXY), a measure of the greenback’s strength against a basket of major currencies, remained subdued around 106.50. This weakness in the US Dollar provided some relief to other currencies but was insufficient to bolster the AUD significantly amid its own domestic pressures.
In a separate development impacting global trade dynamics, former US President Donald Trump signed an order raising tariffs on Chinese imports to 20%. This move added another layer of complexity to international trade relations and could have longer-term implications for global economic growth.