RBA: Unchanged interest rate, changed tonality – Commerzbank
|This morning, the Reserve Bank of Australia (RBA) left the key interest rate unchanged at 4.35 per cent in its last monetary policy meeting of the year. However, the tone surrounding this decision was noticeably more dovish, causing the AUD to weaken significantly in the initial reaction, Commerzbank’s FX analyst Volkmar Baur notes.
Economic development weaker than expected
“Two points stood out for FX traders. Firstly, the RBA had to admit that economic growth in Q3 was weaker than expected. The economic development is therefore weaker than expected, which argues in favour of a looser monetary policy. Furthermore, and this point is even more important, the wording around inflation was changed.”
“It now states that the RBA is more confident that inflation will move sustainably towards the middle of the RBA's target range (2-3%). In November, the RBA still stated that this is exactly what had to happen in order to start loosening monetary policy. There is still a long time to go before their next meeting in mid-February. Two labour market reports and the inflation figures for the fourth quarter will be published in the meantime.”
“The market will therefore be watching these data very closely in the coming weeks to gauge what to expect in February. We expect the RBA to cut interest rates in February. The market's assessment of the probability of such a move is currently a little higher than it was yesterday, at around 64% this morning. A full pricing-in over the next few weeks would weigh further on the AUD.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.