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• Aussie data hawkish for interest rates.
• Risk appetite, still in the wake of Greek sentiment.
• RBA rate decision, not yet a game of two-up.

The economic data out of Australia over the last week has been broadly hawkish for local interest rates. RBA Governor Glenn Stevens set the tone early in the piece when he said that economic growth needed to be “durable”, signalling out inflation as a key figure for interest rate speculation. The inflation figure released this week didn’t disappoint, with CPI reaching 2.9% for the first quarter of 2010. Other local data included the Westpac Leading Index at 0.5%, the import Price Index at 0.3%, NAB Business Confidence of 17, and PPI at 1.0% all of which were better than expectations. Among the Purchasing Price Index were utilities prices up 3.3% and building construction up 0.6%.

Greece is still stealing headlines with a downgrade of its sovereign debt and higher bond yields extending the contagion risk to Portugal. The affect on the local currency has been profound this week with both commodities and global equities taking a battering and risk appetite and the AUD following suit. Countries like Greece and Portugal are too heavy with debt according to S&P, which reduced the Greek debt rating from BBB+ to BB+, pushing their bonds into the “junk” category whilst indicating that bondholders may recover as little as 30%of their investment. Germany is refusing to bail out Greece when there isn’t a sustainable plan to reduce the deficit, which is only putting on weight under growing yields.

The RBA’s target band for inflation is 2-3% and the RBA governor has stated he is determined to achieve the target and noted that this week’s figure “will provide an insight into how things are tracking” with regards to how quickly growth is approaching the long-term average. The probability of a May rate hike is not quite in line with a game of two-up,  with interbank futures holding the probability of a rate hike at 32%, whilst risk appetite is weighing heavily on the local currency which did not continue its stellar climb this week.