The Australian Industry Group (AIG) Performance of Manufacturing Index further cooled in March to 47.9 - from a 48.6 reading the previous period. Any reading below 50.0 indicates contraction in the sector. Given the volatility of this series, its weakness was seemingly not substantial enough to distract from the focus in the RBA rate decision due later in the trading day Tuesday.
This data arrives in the middle of an improving outlook for the economy and monetary policy and most importantly hours before the critical RBA rate decision. Data released earlier in the week ranged from neutral to slightly positive with HIA New Home Sales reporting significantly better growth at 4.6% than expected and private sector credit data largely unchanged.
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Given the indicator’s historical volatility and the market’s preoccupation with the upcoming central bank rate decision, the market’s reaction to the data release was relatively muted. It is not uncommon to see market impact from even notable pieces of event risk deferred in anticipation of releases considered much more influential – and there are few things more important to the Australian dollar than the outlook for Australian interest rates.
In terms of this data’s fundamental influence, it is unlikely that it materially alters the RBA’s policy assessment or outlook. As noted by Currency Analyst Ilya Spivak in his weekly forecast on the AUD “The central bank has advocated a period of policy stability for two consecutive meetings and there is little reason to suspect its calculus has materially changed.”