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Lower CAPEX weighs on Australian dollar


  • Australian CAPEX in Q4 misses forecasts offering some doubts ahead of the next week GDP release
  • Better macroeconomic readings from New Zealand and Japan but currencies remain unimpressed
  • White House is going to make a major announcement about new limits on steel and aluminium imports

The major event during the ending Asian session was the CAPEX data from the Australian economy which disappointed at least on the face of it. Let’s begin with the headline showing the Q4 private capital expenditure fell 0.2% qoq while the consensus had forecast a 1% qoq increase. It seems to be the most important number and therefore the Aussie retreated playing down an upward revision to the third quarter from 1% qoq to as much as 1.9% qoq.

link do file download linkThe overall CAPEX outlook does not look as bad as it seems. Source: Forexlive

Moreover, there were two notable numbers. First of all, the fifth estimate for the 2017/2018 (the red arrow at the chart above) turned out to be a notch higher compared to the fifth estimate in 2016/2017. On top of this, the first estimate for 2018/2019 (the blue arrow) came in at 84 billion AUD just slightly missing the Reuters forecast at 86 billion AUD, and again it was higher than the same data from the prior period of time. Furthermore, it actually was the first time since 2012/2013 when the first estimate managed to beat the value from the prior year. The CAPEX survey captures roughly 60% of total business investment excluding industries such as agriculture, health and education. Although, some look for the data thoroughly so as to asses how it could impact GDP growth, this kind of data is rather forward-looking painting the backdrop for subsequent quarters. The GDP report for the fourth quarter will be released on 7 March.

link do file download linkThe Australian dollar is trading lower about 0.4% at the time of writing being fuelled not only by the disappointing CAPEX for the Q4 but also by relative strength of the greenback. The pair has broken down its important support area at around 0.7755 which appears to herald a deeper pullback on the horizon. Source: xStation5

Apart from the Australia data we got some readings from Japan and New Zealand as well, however, they did not spur increased volatility on JPY or NZD. Admittedly, the Q4 Japanese capital spending grew 4.3% smashing the consensus at 3% in a year-over-year basis, the other prints were not so encouraging. Namely, company profits barely grew 0.9% yoy making a huge dip compared to 5.5% seen in the third quarter. At the same time company sales increased 5.9% yoy meaning an improvement in relation to 4.8% in the third quarter. By and large, it suggests lesser margins which seems to be a bit hard to understand as wage pressure remains still subdued therefore, if sustained, it does not bode well for higher wage growth and thereby inflation going forward. In turn, the New Zealand’s economy released the Q4 terms of trade which grew 0.8% qoq beating the consensus at 0.5% qoq. The better than forecast number was revealed in a yoy basis as well, albeit the kiwi did not respond too much.

link do file download linkThe Japanese yen has hardly responded to the data so far, however, the longer-term backdrop seems to bode well for JPY bulls as the key supply zone in the vicinity of 108.3 has remained intact. Source: xStation5

Finally, let us mention the US White House official communique where it informed that it was planning to make a major announcement on Thursday about whether it would impose new limits on steel and aluminium imports. If the US imposed fresh limits on imports it could act in favour of domestic inflationary pressures along with the weakening US dollar, however, the net impact is expected to be contained as much of US imports are settled in dollars.


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