The Australian dollar has been choppy since the start of the week. It was heavier through Tuesday, then found its footingand has clawed back some gains. The latest gains have been modest and mostly USD driven, as the greenback eased on lower yields and some moderation in oil prices.Domestically the focus was on the RBA minutes and the NAB Business Survey for September. The minutes from the September meeting were hawkish, as expected. Several of the upside inflation risks flagged in August have now materialised. Oil is higher, cost pressures tied to the global AI build out are growing,and inflation data pointed to tighter domestic capacity than the Board had assumed.Members now see excess demand as larger than previously judged. They also raised the possibility that the neutral rate has moved higher, which would make the current cash rate less restrictive than it looks. The Board stressed the importance of anchoring inflation expectations and accepted softer employment growth as the price of doing so. Further hikes were left on the table if needed,and members were clear that financial stability is not a constraint on policy, which keeps the door open to more tightening.
The September NAB survey showed both business confidence and conditions continuing to remain soft. Business confidence fell 4 points to -13, the third straight monthly decline and a reading in the bottom 5% of the survey’s history. Conditions held at-1, with small rebounds in trading and profitability offset by a 3 point drop in the employment index,which hit a five year low.NAB pointed to a triple threat of higher rates, global uncertainty and elevated fuel and diesel costs as key risks for businesses. The concern is that this pessimism feeds into hiring, investment and spending, and raises the risk that activity softens further into yea rend. In our view, this sits awkwardly against a hawkish RBA.Looking ahead, September labour force data is due later today and is the last major labour print before the RBA meets. We expect 20.8k jobs added and the unemployment rate easing to 4.5% from 4.6%. As stated in our weekly on Monday and reinforced in the RBA minutes,we believe the RBA board isplacing more weight on inflation for now, so the bar for labour data to change the outlook is high, buta surprise could still shift its thinking at the margin.
The key focus this week has been on the IMF meetings in Bangkok and the subsequent release of the WEO report for October. The IMF describes the global economy as resilient but split. Growth is forecast at 3.1% this year, a touch above July, and 3.4% in 2027. Strong AI investment is propping up activity, but buffers are thinning and risks tilt to the downside. The US economy is expected to grow 2.3% this year(unchanged from the July forecast), with 2027 growth nudged up 2.3% (from 2.2%) on solid consumption and tech investment. The euro area had its growth forecast upgraded to 1.1% this year from 0.9%, with 2027 growth unchanged at 1.2%. China's growth - which has faced some challenges in recent months, particularly in its property market - was trimmed by 0.1% in both years, to 4.5% this year and 4.0% in 2027.On inflation, global headline inflation is projected at 4.7%this year, unchanged from July and driven by energy and food prices from the Middle East war, before easing to 4.1% in 2027, revised up from 3.9%. Advanced economy inflation was lifted to 3.1% this year from 3.0%, and to 2.7%in 2027 from 2.4%. The US is at 3.6% this year and 2.8% in 2027, the euro area at 3.1% and 2.8%, and Japan at 2.0%and 2.6%. Core inflation is also expected to return to 2% only gradually, by mid 2028 in both the US and euro area. The IMF also expects policy to be less supportive than assumed earlier this year, with US and euro area rates expected to rise in real terms.
On the data front, US CPI was the focal point this week.[US CPI to be added tomorrow morning. Consensus was 0.6% m/m and 3.6% y/y for headline versus 0.4% and 3.4%prior, and 0.2% m/m and 2.5% y/y for core versus 0.3% and 2.4% prior.]Elsewhere, oil remained in focus. Brent rallied to its highest close since mid September on Monday hitting$108/bbl, yet prices have since steadied around $106/bbl.Houthi attacks on Saudi Arabia, including a deadly strike on Riyadh’s airport over the weekend, and Iranian attacks on tankers near Hormuz have kept risk premiums elevated. Washington added further pressures to the oil market, as President Trump announced an energy ceasefire between Russia and Ukraine and temporarily eased sanctions on Russian fuel. However, Russia has yet to confirm the truce and its refining capacity remains badly reduced, so the extra supply is likely limited.
