Central Bankers Warn of Inflation Risks in Quiet Asia-Pacific Trading

Session highlights:

• Japanese markets were shut for holidays on Monday, Tuesday, and Wednesday, leading to sparse trading across the region.
• Oil prices climbed from Monday's lows, notching their first advance in five sessions without any apparent new catalyst. Gold moved within a narrow band, roughly between $4,340 and $4,370.
• Boston Fed President Susan Collins told the Associated Press that the resumption of Middle East hostilities in August was a major factor behind her support for last week's quarter-point rate increase to approximately 3.9%. She also has anticipated another rate rise later this year.
• European Central Bank board member Philip Lane, in a Swiss newspaper interview cited by Reuters, said Europe's growth should remain steady as long as the energy shock does not worsen. He added that a second wave of energy price increases would push inflation higher before it starts declining from mid-2027.
• Text from a September 7 podcast with Reserve Bank of Australia Assistant Governor Sarah Hunter, recently released, revealed her view that the argument for another rate hike is strengthening, pointing to Middle East oil costs and demand exceeding supply.
• Reserve Bank of New Zealand Governor Anna Breman stated that ongoing higher oil prices are likely to push near-term inflation above the projections in the September Statement. She noted that considerable risks to the outlook persist ahead of the October policy decision.
• Reserve Bank of Australia Governor Michele Bullock kept a hawkish stance during a fireside chat, echoing her parliamentary testimony from Friday. She said supply shocks are hard for monetary policy to handle and that policy must tackle the second-round effects on inflation.
• After Breman's remarks, the New Zealand dollar performed better than other currencies, while the Australian dollar gained some support from Bullock's comments. The US dollar slipped slightly, and major foreign exchange pairs were otherwise not a major focus.
• British Columbia has filed a lawsuit against OpenAI and its CEO Sam Altman in US federal court, according to the Wall Street Journal. The suit claims ChatGPT was an unsafe product and that OpenAI was negligent for not notifying police about the Tumbler Ridge shooting suspect's use of the chatbot prior to an attack that left eight dead.

New developments out of Asia were scarce, as Japanese markets were closed on Monday and Tuesday, with Wednesday also a holiday. Crude oil edged up from Monday's trough, recording its first rise in five trading days, but no clear catalyst was apparent. Gold was confined to a narrow band, fluctuating between around $4,340 and $4,370.

Despite the quiet news flow, several central banker comments came through. Boston Fed President Susan Collins said to the Associated Press that the August resumption of Middle East fighting was a key factor behind her backing of last week's quarter-point rate increase to around 3.9%. Collins noted she had not observed the inflation improvement she had anticipated, has planned for another rate hike later this year, and anticipates rates staying flat in 2027. She also mentioned that businesses in her region are still worried about elevated costs, with many planning to pass these costs to consumers.

European Central Bank Executive Board member Philip Lane, speaking to a Swiss newspaper as reported by Reuters, said Europe's economy should keep growing at a steady but moderate rate if the ongoing energy shock does not worsen. Lane noted that a second wave of energy price hikes will drive inflation up before it comes down towards the ECB's target starting from mid-2027.

Separately, a transcript was released of a September 7 podcast with Reserve Bank of Australia Assistant Governor Sarah Hunter. Hunter said the case for another RBA rate increase is building, citing Middle East-driven oil costs and domestic demand outstripping supply. Reserve Bank of New Zealand Governor Anna Breman stated that if oil prices stay elevated, near-term inflation is likely to be somewhat higher than the Bank's September Statement projected. Breman said the RBNZ will evaluate incoming data and global developments before its October decision, adding that there are significant risks to the outlook. Reserve Bank of Australia Governor Michele Bullock's early comments from a fireside chat maintained the hawkish tone from her Friday parliamentary appearance. Bullock said supply shocks are challenging for monetary policy and that policy must address the second-round effects on inflation. She also noted that unemployment of 4.5% to 5% is likely to ease inflation pressure, and that neutral rates are rising globally.

Major currency pairs were not a major focus, but the New Zealand dollar notably outperformed after Breman's comments, and the Australian dollar gained some support from Bullock's remarks. The US dollar eased slightly during the session.

On the corporate front, British Columbia has sued OpenAI and its CEO Sam Altman in US federal court, the Wall Street Journal reported. The suit alleges ChatGPT was an unsafe product and that OpenAI was negligent for not alerting police to the Tumbler Ridge shooting suspect's use of the chatbot before an attack that killed eight. The case is seen as a test of whether AI developers can be subject to product safety and negligence standards when its employees had raised internal concerns about a user. The province argues that AI companies have no exemption from standard criminal and civil liability rules.