Australian businesses have more investments.

The Australian dollar (AUD) has strengthened significantly over the past week, supported by remarks from Michele Bullock, Governor of the Reserve Bank of Australia (RBA). Bullock stated that Australia's core inflation remains too high to consider cutting interest rates in the near term. The AUD also benefited from a weakening US dollar after the release of US Personal Consumption Expenditures (PCE) data aligned with expectations, signaling that the Federal Reserve is unlikely to adjust its rate policy in the near future.

Australia's Consumer Price Index (CPI) rose by 2.1% year-on-year in October, marking stable inflation for the second consecutive month but falling short of market expectations of 2.3%. The figure reflects the ongoing impact of reduced government subsidies for electricity, even as electricity prices fell another 35.6% this month. Meanwhile, food prices continued to rise, increasing by 3.3%, driven by higher input costs due to the reliance on imported materials and energy.

The RBA maintains that cutting interest rates will only be viable once Australia's core inflation returns to the central bank's target range. The bank also expressed concerns about potential inflationary pressures in early 2024, driven by increased consumer demand for clothing, food, and energy. Additionally, inflation could rise slightly as companies, benefiting from robust financial health, are more capable of absorbing higher input costs.

Private sector credit in Australia grew by 0.6% month-on-month in October, surpassing market expectations of 0.5% and marking a slight rebound after stabilizing at 0.5% for three consecutive months. This growth underscores the strength of Australia's private sector. Housing credit increased by 0.5%, while personal loans rose by 0.1%, rebounding from a decline in the previous month. Since the beginning of the year, private sector credit has expanded by 6.1%, reflecting the domestic economy's resilience despite inflationary and interest rate pressures.

Investment spending in Australia grew rapidly by 1.1% in Q3, exceeding market expectations of 0.9% growth and recovering from a 2.2% contraction in the previous quarter. This increase was driven primarily by spending on machinery and equipment, which grew by 1.1%, and building and infrastructure investment, which also rose by 1.1%. These figures highlight the capability of domestic businesses to expand and invest for future profitability. However, this surge in investment may indicate strong demand both domestically and internationally.

The yield on Australia's 10-year government bonds has remained steady at around 4.41% following Michele Bullock's statement on Thursday. She noted that interest rates might need to remain elevated for an extended period due to persistent core inflation. Despite this, some Australian economic data suggests that the domestic economy is stable and may achieve slight growth, as seen in rising credit usage and increased investment in machinery and equipment. However, investors remain uncertain about the precise timing of future interest rate cuts, though projections suggest the rate could be around 3.85% by 2025.