Australian December services PMI 47.3 (prior 47.6) & Composite 47.5 (prior 48.0)

We had the flash reading for these back in mid-December:

• Australian preliminary December PMI: Manufacturing 50.4 (prior 51.3), services 46.9 (47.6)

These are from Judo Bank / Markit. We had the manufacturing reading earlier this week:

Ugly services PMI. Higher interest rates seem to be biting.

Commentary from the report (in summary):

• sub-50 readings for business activity, outstanding work, exports and new business activity
• Australia’s service industries boomed in 2022 and are now slowing down as higher interest rates and the rising cost of living crimp demand. It is unclear how much further service sector activity will need to slow before the RBA feels comfortable enough to pause its tightening cycle. The December report is consistent with a soft landing for the economy in 2023. The question remains if this will be adequate to bring inflation
  Inflation
  
  Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
  
  Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
  Read this Term back to the RBA’s 2% to 3% target band by 2024.
• services sector employment index has been strong throughout 2022 with index readings in the mid-50s. Given the dominance of service sector employment in the economy, this index will be critical to Australia’s economic prospects in 2023. If the demand for labour contracts and we see higher unemployment emerge later in the year, the RBA should be satisfied that tighter monetary policy is working to reduce wage and inflation pressures across the economy.