Asian stocks look set for a negative open, with Nikkei -0.57%, ASX -0.71% and KOSPI -0.85% at the time of writing, as sentiments are challenged with higher US bond yields and a stronger US dollar overnight. The calendar this morning brought weaker-than-expected household spending data out of Japan, coupled with an improving but still below-consensus wage growth for December. The more measured wage increase (1% versus 0.2% previous) may align with the Bank of Japan’s (BoJ) view that conditions are moving in the right direction but may still need more time to assess that the pricing and wage trend will stick.
Ahead, the Reserve Bank of Australia (RBA) meeting may be the key event today. Expectations are for the central bank to keep rates on hold at 4.35% at the upcoming meeting, justified by slowing inflation and downside surprises in growth conditions over the past months.
Market focus will be on whether the recent run in weaker economic data is sufficient to drive any dovish shift in tone around rate outlook, given that markets are looking for two rate cuts in the second half of this year, which needs policymakers’ validation. That said, the likely scenario could be for further wait-and-see at the upcoming meeting, with the central bank potentially maintaining their tightening bias in the statement to offer policy flexibility in case of sticky inflation.
The AUD/USD has displayed a downward bias for now, following the breakdown of a head-and-shoulder neckline at the 0.652 level to start the week. Its 100-day and 200-day MA have also given way, while the pair heads back below its Ichimoku cloud on the daily chart for the first time since November 2023. Further downside may leave the 0.635 level on watch.