Thursday: Aussie dollar strengthens

The International Energy Agency releases 400 million barrels of oil from its reserves,

but prices are back up 5% as the Middle East conflict deepens.

US Cornflation falls in February and the Aussie dollar has strengthened after hawkish RBA

comments.

That's coming up in our five things in five minutes on Thursday, March 12th, and then

in part two of a deep dive interview on the outlook for Australia's agricultural sector

ANZ's head of agribusiness, Mark Bennett, analyzes the prospects for dairy and wool.

So we're probably looking for a global economic growth turnaround to really support these prices

going forward.

But first in five and five with ANZ, the International Energy Agency announced the release of 400

million barrels of oil overnight.

That's a record single release, but was still not enough to stop West Texas and immediate

futures rising nearly 5%, as traders assessed the ongoing impact of the Middle East conflict.

Meanwhile, on other news, US core CPI inflation fell to 0.2% in February from 0.3%.

ANZ economist in London, Henry Russell, says an underlying disinflation trend was intact

prior to the Middle East conflict.

That being said, this report does feel like old news given the upside risks to inflation

that have emerged following the conflict, and that's likely to keep the fed cautious despite

a very soft labour market.

Those diverging risks to the fed's dual mandate are creating a challenging dilemma for policy

makers ahead of their meeting next week.

While higher inflation in the near term does add to the narrative that the fed should be

patient with respect to further rate cuts, we do not think the fed is in a position to

tolerate further weakness in the labour market and should further weakness emerge.

We think that would necessitate a policy response.

As up for AMC, Melbourne time years in P500 was down 0.1%, the NASDAQ up 0.1%, the Dow

down 0.7%.

The US 10 year yielded up 7.5 basis points at 4.21%.

West Texas intermediate futures were up 4.4%, at 87 US dollars a barrel.

Gold was down 1.1% at 5183 US dollars an ounce.

The US dollar index up 0.3%, the Aussie dollar rose, it was up 0.45% at 71.51 US cents

while the Kiwi fell 0.2% to 59.16 US cents.

As we mentioned there, the Aussie dollar has been strengthening in recent days.

Ainset head of FX Research, Marjorie Benzeman sees there are a number of factors driving

the Aussie up.

The first being the fact that we've had hawkish commentary from RBA more recently that

has helped.

Secondly, of course, we have an iron environment where there are high oil prices and

high energy prices and Australia being net energy exporter tends to benefit from a positive

terms of trade channel.

So we've seen that come into play as well and then of course when we look at domestic

resilience, I mean when we compare where we are versus the rest of the world, I think

the growth outcome we saw for Q4 in recent weeks has been pretty good and I think again

that points to the margin of strong growth.

Number three, Japan's goods produce a price index came in slightly lower than expected

in February at 2% up from a year ago.

Marjorie Benzeman says that even with that undershoot, some cost pressures are still flowing

through rather than there being disinflationary momentum.

Export prices rose 9.5% year in year import prices 2.8% year in year.

Now this gap reflects the weaker yen and a strong pricing power in metals and electronics

which will likely support corporate margins at the most.

Now this is consistent with an economy where inflation is easing very slowly but then

at the same time you have an issue where there's a weaker yen rising wages which again

demonstrate some sort of an inflationary pressure from the services side of things.

Number four, Ayns and New Zealand card spending rose 0.6% in February to be 4.4% higher than

a year ago.

Ayns and New Zealand's chief economist Sharon Zolmer says the rise fits with New Zealand's

general economic recovery story.

We're definitely seeing an increase in spending across the board so it's pretty broad based

though housing is a soft spot.

You can see that in some of the housing durables for example but generally speaking the

discretionary spending is lifting so although cost of pressures are definitely still an issue

we are seeing people start to make different choices.

Number five China has recently announced annual growth target for 2026 was the lowest

since 1991 however iron ore prices moved up slightly.

Ayns its senior commodity strategist Daniel Hines explains why.

There's been a lot of talk about the impact of overcapacity in the steel industry and

last year there were efforts to start reducing some of that capacity.

The National People's Congress heard though that they will implement a more orderly reduction

of that capacity so that should provide a little bit of stability to the steel market.

Ultimately it will reduce the overcapacity issue which should improve the margins for

steel producers and thus improve prices as well.

Daniel Hines there.

Now in part two of our deep dive interview Ayns head of agribusiness market Bennett discusses

the outlook for Australia's wool and dairy sectors as we head into autumn.

We weren't seeing much excitement in the wool industry through the last year or so but

we've seen a really good recovery to price in the new year and the eastern market indicator

moving from around that 1100 cent smart to 1600 cent has been a really welcome for our

producers and particularly so we've seen this improvement in medium wools rather than

the finer end of wool.

Maybe if it's a negative if anything it's probably more supply driven than it is demand-driven.

We've seen global demand for high quality proteins probably lead the way in a stronger

way than we've seen in natural fighters like wool and if that supply factor I think that's

the real reason for this turnaround in price or for the finer end walls to come a bit

better and to see sustained period of higher wall prices we probably would look towards

an improving global demand and economic growth story so it will again just be interesting

to see how this here pans out.

You know those finer end wool and fibers find their way into that high end apparel and

the soup market of western Europe and so on that side of the economy just isn't showing

the strength that we've seen in better days and you are seeing processes probably trying

to favour the medium micron walls just to get their cost down as they try and supply

product at the best possible margin so we're probably looking for a global economic growth

turnaround to really support these prices going forward.

One dairy we've had structural supply constraints in a low herd count in recent years is that likely

to continue?

So it's just been a story of adjustment particularly from the lack of water in that northern

system and then to a broader thing within farming that's seen consolidation roll on where

we just see fewer farms but larger farms dominating the landscape and the production of total

output and we've seen fewer cows but higher yielding cows that comprise those fewer farms so

the herd's been falling the farm numbers been falling and we're probably seem to be settling

around a sustainable output level in the Australian dairy market unless or until something else

changes.

The one thing about that is those producers that have found their way to farm profitably in today's

environment with scale and technology and use of good data and herd genetics and so on

automation all of these things are wholly well and true for some of our best dairy farmers in

the market and without that incentive to invest and expand through price signal that probably

supports a price argument for them in the medium term as well to to enjoy dairy farming a bit

different from our broad acre farm pursuits in that it's much more labor intensive so hard

to replicate the efficiencies that we've seen by comparison in broad acre cropping but even so

producing fantastic products and maybe the other change that we've been talking about in the

animal protein markets that's different within dairy is that we've become a more domestically

focused production system as well so in 10 or 15 years ago would have been the markets of

the cheese markets of a Singapore or the powder market of China really dictating dairy prices

at the farmgating in Victoria or any of the export manufacturing centres to today it's much more

biased towards the domestic industry given that lower milk pool so that's a change in some way

isolates us from that volatility that we see in international markets although it all comes

together to form the ultimate price.

Mike Bennett there I'm Bernard Hickey that was five and five with ANC for Thursday

March the 12th, catered tomorrow with a look at the US trade balance for January to see whether

those tariffs continue to affect imports.

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