- Australia’s interest rate will remain unchanged at 4.35%.
- Reserve Bank of Australia Governor Michelle Bullock says she has no plans to change her stance.
- The Australian dollar is poised to widen its decline against the US dollar.
The Reserve Bank of Australia (RBA) is widely expected to announce its monetary policy on Tuesday, leaving the Official Cash Rate (OCR) unchanged at 4.35%, a 12-year high.
The RBA has changed the number of monetary policy meetings in 2024, reducing the number of board meetings from 11 to just eight a year. Officials decided to reduce the number of meetings to give the board more time to assess economic trends.
Statistics available since the December decision show that while growth remains sluggish, inflation has receded sharply, justifying market expectations that OCR has no chance.
Reserve Bank of Australia eases inflation and endures slowing growth
With OCR expected to be stable at a record high, the focus will be on the accompanying statement and Governor Michelle Bullock’s press conference. Back in December, the RBA issued a statement saying: “Inflation continued to fall, but remains high.Wage growth reached 4% a little earlier than expected, but staff judged it unlikely that wage growth would rise much further. Growth remained below trend and the labor market remained tight, but gradually eased.Members agreed at this meeting that financial stability considerations are not a constraint on monetary policy.”
Australian policymakers maintained language on further interest rate hikes, with inflation expected to remain above target for an extended period of time. But the latest numbers were very encouraging. The Consumer Price Index (CPI) rose 0.6% in the fourth quarter, slowing from 1.2% in the previous quarter and below expectations of 0.8%, the Australian Bureau of Statistics (ABS) said. RBA trimmed average CPI, the central bank’s preferred metric, rose 0.8% in the same period and 4.2% year-on-year, the latter slowing from 5.1% in the third quarter. Finally, the monthly consumer price index rose 3.4% year-on-year in December, after 4.3% in the previous month.
The RBA’s base scenario for its January decision assumes not only an easing of inflation, but also a softening of economic activity. In such a scenario, most economists expect the wording of the statement to remain unchanged, leaving policymakers open to further rate hikes if necessary. Interest rate cuts are likely to remain off the agenda. Money markets are not considering a change in monetary policy in the first half of this year.
The Australian dollar (AUD) could come under selling pressure if policymakers choose a more dovish tone to express their views on the future of monetary policy. But remaining hawkish may not provide fresh impetus for Australia, with investors these days preferring to ignore central bankers in favor of bets on interest rate cuts.
Block has warned of upside risks to inflation and may soften his tone, but given the still tight labor market, he is likely to maintain a cautious tone. Recent data shows a sharp decline in the number of employed people, with the monthly report showing that the number of job openings in December decreased by 651,000, while the unemployment rate remained stable at 3.9%. Masu. The participation rate also decreased from 67.3% to 66.8%.
What impact will the RBA’s interest rate decisions have on AUD/USD?
The Australian dollar/US dollar traded at its lowest level since November last year on Monday amid broad dollar demand. The Australian dollar (AUD) has been weakening against its US rival over the past five weeks, and this latest start is an extension of that weakness. The pair is trading below the 0.6500 threshold and has room to extend the decline in the long term.
Valeria Bednarik, Principal Analyst at FXStreet, said: “The bearish momentum is also evident on the daily chart, where it has fallen below the 100 SMA (simple moving average) for the first time since mid-November, and after a battle by buyers throughout January, it has finally It has fallen,” he said. Defend the area. At the same time, the 20 SMA has fallen faster than the long-term SMA, reflecting persistent selling interest. Finally, technical indicators suggest that the bears intend to continue selling southward within negative levels. ”
Additionally, Bednarik said: “The current price range seems to be lacking a suitable level of support. Sellers will look for a downward extension towards 0.6450 with an aim to reach the 0.6370/80 area. USD AUD/USD could extend its decline towards 0.6300/30 after the event. On the upside, the level to watch is the aforementioned daily 100 SMA, currently around 0.6530 Above the latter, the recovery could continue towards 0.6600, where we expect sellers to jump in again.
RBA FAQ
The Reserve Bank of Australia (RBA) sets Australia’s interest rates and controls monetary policy. Decisions are made at the Board of Directors’ meetings held 11 times a year and at extraordinary emergency meetings as necessary. The RBA’s primary mission is to maintain price stability, or an inflation rate of 2% to 3%, but it also “contributes to monetary stability, full employment, economic prosperity and the well-being of Australians”. The main means of achieving this is by raising or lowering interest rates. If interest rates are relatively high, the Australian dollar (AUD) will appreciate, and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation has traditionally always been considered a negative factor for currencies, as it generally reduces the value of money, in modern times, with cross-border capital controls being relaxed, the opposite is actually true. Currently, as inflation rises slowly, central banks tend to raise interest rates, which in turn has the effect of further capital inflows from global investors looking for lucrative places to store their money. . This increases the demand for the local currency (the Australian dollar in the case of Australia).
Macroeconomic data assesses the health of an economy and can influence the value of a currency. Investors prefer to invest their capital in safe and growing economies than in unstable and shrinking economies. Increased capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators such as GDP, manufacturing and services PMI, employment and consumer sentiment surveys can influence the Australian dollar. A strong economy could prompt the Reserve Bank of Australia to raise interest rates, which could also support the Australian dollar.
Quantitative easing (QE) is a tool used in extreme situations where lower interest rates alone are not sufficient to restore credit flow to the economy. QE is a process in which the Reserve Bank of Australia (RBA) prints Australian dollars (AUD) for the purpose of purchasing assets (usually government and corporate bonds) from financial institutions, providing them with the liquidity they need. QE typically results in a weaker Australian dollar.
Quantitative tightening (QT) is the opposite of QE. This is done after quantitative easing, when economic recovery is underway and inflation begins to rise. In QE, the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide liquidity, whereas in QT, the RBA stops purchasing further assets and limits the maturities of bonds it already owns. Stop reinvesting the principal you received. That would be positive (or bullish) for the Australian dollar.
economic indicators
Australian RBA interest rate decisions
of reserve bank of australia The (RBA) announces interest rate decisions at the end of its eight scheduled meetings a year. When the RBA is hawkish about the economy’s inflation outlook and raises interest rates, it is usually bullish on the Australian dollar (AUD). Similarly, if the Reserve Bank of Australia (RBA) takes a dovish view of the Australian economy and leaves interest rates unchanged or lowers, that would be considered bearish for the Australian dollar.
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