Australia capex numbers fall well short

AUD/USD has been in focus yet again in Asia today, with the all-important private capital expenditure data released at 11.30 AEDT. 

This reading is a key input for GDP and growth expectations and therefore always carries significant weight. Total spending for the fourth quarter was down 5.2% with plant and equipment slumping 8.6%, while building and structures dropped 3.5%. This had a devastating impact on the AUD as it was dramatically sold off on the back of the data.

Following the RBA’s recent switch to a more neutral bias, the market would have really wanted to see signs of a turnaround in today’s figures. The market was pricing in a 10% decline to $137 billion but today’s first estimate came in well below par at $124.9 billion, equating to about a 17.4% decline.  Like we have been saying all week, this figure is an important feed into GDP expectations and therefore having been significantly disappointing, it will have negative implications.

Analysts would have really wanted to see investment intentions at least stabilise particularly on the plant and machinery front. Even outside mining investment, activity remains extremely weak with manufacturing intentions down a whopping 20%. Manufacturing deserves some attention at the moment given the recent changes we’ve seen in the car industry in particular. This shifts focus to the RBA’s March meeting next week, with significant pressure on the bank to tone down its language. So far, other metrics such as weak jobs have been called a lagging indicator by the RBA, but today’s data really does make a difference. Today’s reading will be followed up by private sector credit numbers tomorrow. Private sector credit for January is expected up 0.5% on-month and higher by 4.1% on-year.

Bottom-end of the range under threat

While the bottom-end of the range has held so far today, I really feel AUD/USD is now entering a crucial 48 hours with a key release to look out for locally and some activity on the US economic calendar as well. The low of the session so far has been 0.8917, but AUD/USD has since come off that level. A breach of 0.89 is likely to breed panic heading into the RBA next week. This would see the pair trade down to the 0.8850 region, which was previous support. A stronger USD will have the same impact as a weaker AUD. With durable goods orders, unemployment claims and Fed chair Janet Yellen’s second testimony, we are bound to see some moves in the greenback.  

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