TD Securities strategists Prashant Newnaha and Alex Loo note that Australian activity has stabilised in April, with services rebounding into expansion while manufacturing remains in contraction. However, they stress that input and output prices across both sectors have surged to multi‑year highs. Against this backdrop, they expect the Reserve Bank of Australia to deliver another 25 bps rate hike in May.

Australian data support May RBA hike

"The Flash Composite PMI Output index rebounded from contraction to expansion in April, but this was entirely due to services activity picking up while manufacturing activity contracted."

"With activity on balance stabilising but price pressures accelerating to multi-year highs across both sectors, the case for further RBA tightening remains intact."

"The Composite measure of input and output prices accelerated, with input prices the highest in 4 years with output prices the highest in 3.5 years, to be well above averages."

"The Composite Employment Index rose from 51.8 to 53.1, pointing to a strong start for employment to begin the 2nd quarter."

"We anticipate the RBA delivers a 25bps hike at its May meeting while markets are pricing about a 70% chance to this outcome."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)