RBA: Up and away

Giles Coghlan LLB, Lth, MA Financial Source

Heading into the latest RBA meeting it was reasonable to expect a more bullish decision as the Q4 2022 headline inflation data rose to 7.8% from 7.3%. This was a marked increase in inflationary pressures and would have got the RBA’s attention as inflation was stepping higher in Australia. This was the highest inflationary print since 1990.

The RBA referenced this print in its statement, but the RBA governor expressed confidence that inflation would peak. This chimed with the inflation report itself as it was largely within the holiday and leisure sector where the most inflation was found. This was a natural response to COVID lockdowns as pent-up demand was used in travel to see friends and family.See here for the details.

The 25 bps hike was as expected, but some thought this could be the last hike from the RBA. However, the RBA signalled further hikes to come: ‘The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary’. In STIR markets the terminal rate is now just under 4% for this summer with the level now at 3.35%, so the market expects more hikes from the RBA.

The way ahead for FX

The Board pointed out its concerns about a high labour market, high inflation, and some struggling households with higher interest rates. So, going forward it means labour data and inflation data are likely to provide short-term tradable opportunities in FX. If the inflation data comes in high that would support the AUD as traders speculate it will make the RBA more hawkish on its path of rates going forward. The vice versa should also hold with lower than expected inflation prints weakening the AUD on expectations that RBA will need to be less aggressive in hike rates.

Learn more about HYCM

Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.