A big week ahead for Australian Markets

There will be plenty of economic activity to follow from Australia this coming week. Top of the list being the Reserve Bank’s meeting, as well as the latest on GDP figures and the Trade Balance.

With a somewhat gloomy short-term outlook building for the island nation, policymakers are skating on thin ice, and many of the country’s residents are already feeling financially overwhelmed by out-of-control prices.

Here’s what's happening this week, and how analysts see things playing out.

RBA set to hold rates

Aussies will be bracing themselves for Tuesday afternoon as the Reserve Bank meets again on monetary policy with its statement released at 4:30 AM GMT. With inflation remaining stubbornly high, the property market as tight as a drum, and while productivity growth remains flat, the RBA faces yet another difficult interest rate decision.

Just last week, the Australian Bureau of Statistics (ABS) published its monthly Consumer Price Index (CPI) indicator, showing that it had increased 6.8% in the year up to April. The figure has grown since the 6.3% increase reported in March, but is lower than the peak of 8.4% recorded in December 2022. An official from the ABS suggested it was important to note that the volatile price of fuel was a significant contributor to the increase in April, and the reduction of the fuel excise tax in April 2022, which was completed in October 2022, has had a decent influence on the yearly movement.

To combat inflation, the board has already raised interest rates 11 times since May of last year, with an unexpected 25 basis point bump last month up to 3.85%, following a pause the month before. Analysts are split on the outcome of this meeting's decision, but a slim majority predict that another pause is to be expected before possibly resuming tightening some time in August.

Economists at Westpac suggest there is too much uncertainty for the RBA to boost interest rates again this week. Of particular concern is the prognosis for household expenditure, particularly given the inherent delays of this particular tightening cycle. The best course of action, according to the international bank, is to take a thorough break so that these delays may be evaluated fully.

Both RBA Governor Philip Lowe and Deputy Governor Michele Bullock will be speaking at different events the day following the rates decision at 11:20 AM GMT and 11:50 AM GMT respectively. Governor Lowe will speak in Sydney at the Morgan Stanley (NYSE:MS) Australia Summit, with audience questions anticipated, while Deputy Bullock is attending the Australian Banking Association Annual Conference in Sydney speaking on a panel titled "Role of Regulation in Uncertain Economic Times."

Quarterly GDP update due

The March quarterly economic growth results will be released by the Australian Bureau of Statistics on Wednesday at 1:30 AM GMT.

Following an upwardly corrected 0.7% expansion in Q3, the Australian economy grew by a less than expected 0.5% quarter over quarter in the three months to December 2022. This was the fifth consecutive period of economic expansion, but the weakest pace in the sequence, as household consumption increased slower.

If analysts are correct in their assumptions for Q1, the report might show the worst three months of economic activity since lockdowns dragged on GDP in the 2021 September quarter. The National Australia Bank (NAB) forecasts 0.2% quarterly growth and around 2.3% growth year on year.

The NAB in its month of May “Forward View” anticipates growth to be well below trend in 2023 and 2024, at 0.7% and 1.2%, respectively. With the exception of 2020, which was affected by the pandemic, this would mark the weakest yearly increase since the early 1990s. Consumption dynamics are still the dominant factor at work, suggested the bank, and household pressure will increase through the second half of 2023 and into early 2024.

Australian Balance of Trade

On Thursday, the ABS publishes the Trade Balance at 1:30 AM GMT.

Posting a bumper month in March, Australia's trade surplus grew from an upwardly revised AUD 14.15 billion the previous month to AUD 15.27 billion, and was well above market expectations. As exports increased more than imports, the trade surplus was also the highest since last June and the second largest ever recorded.

Shipments increased by 3.8% from the prior month to a six-month high of AUD 59.30 billion, led by an increase in sales of metal ores and minerals. Total exports to China, Australia's biggest trading partner, increased by 28.5% as the nation continues its broad pandemic recovery.

A pullback from those all-time highs is anticipated for the month of April according to Westpac, when the surplus is expected to come in at around AUD 11.8 billion, a decrease of AUD 3.5 billion as a result of higher commodity costs and lower volumes.