- Australia’s benchmark interest rate is set to stay unchanged at 4.35% in November.
- The focus remains on Reserve Bank of Australia Governor Michele Bullock’s comments and updated economic forecasts.
- The Australian Dollar could wilt if RBA Governor Bullock ramps up bets for a December rate cut.
The Reserve Bank of Australia (RBA) is expected to sit tight yet again on its monetary policy, extending the pause into the eighth straight meeting on Tuesday.
The RBA is set to maintain the Official Cash Rate (OCR) at 4.35% after its November policy meeting. The decision will be announced at 03:30 GMT, followed by Governor Michele Bullock’s press conference at 04:30 GMT.
Reserve Bank of Australia to stand pat again
With a no-rate change decision fully priced in this month, the market’s attention will be on the RBA’s updated economic forecasts and Governor Michele Bullock’s press conference for fresh hints on the timings of the central bank’s first interest rate cut since its post-covid tightening cycle.
Sticky underlying inflation and tight labor market conditions continue to back the case for a cautious stance by the Australian central bank.
The RBA’s preferred inflation gauge, the annual Trimmed Mean Consumer Price Index (CPI), slowed to 3.5% from 4.0% in the third quarter but stayed above the Bank’s 2%-3% target. The service-sector inflation also remained elevated.
Additionally, the RBA’s annual report, published on October 25, reiterated that inflation would not be sustainable within the 2%-3% target for ‘another year or two’.
Meanwhile, the Australian economy added 64,100 jobs in September, beating the estimated net gain of 25,000 jobs. Of the new jobs created in September, 51,600 were full-time roles. The Unemployment Rate stood unchanged at 4.1% in September, against the forecast of an increase to 4.2%.
These data points potentially rule out any policy change this week and for the rest of this year. Markets are currently pricing in less than 20% probability of a Christmas rate cut by 25 bps, according to BBH analysts.
Previewing the RBA policy decision, analysts at TD Securities (TDS) said: “The RBA is unlikely to debate the case for hiking but we don't believe the forecasts to reveal the Bank is considering cuts over coming months either. For now, we stick to May 2025 as the first RBA cut.”
How will the RBA interest rate decision impact AUD/USD?
The Australian Dollar (AUD) is moving away from its lowest level in two months against the US Dollar (USD) in the lead-up to the RBA announcements. Will the central bank provide extra legs to the AUD/USD recovery?
The ongoing upswing could continue if the RBA repeats that “the Board is not ruling anything in or out,’ while acknowledging upside risks to inflation. Thus, the Bank’s prudent approach is expected to drive AUD/USD back toward 0.6700.
Conversely, the pair could witness a sharp sell-off toward 0.6500 in case RBA Governor Michele Bullock says in her post-meeting press conference that the Board discussed cutting rates as an option at the meeting.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes key technicals for trading AUD/USD on the policy outcome. “AUD/USD has come up for air, testing the 200-day Simple Moving Average (SMA) ahead of the RBA decision. The 14-day Relative Strength Index (RSI) rebounds sharply but remains below the 50 level, currently near 41, keeping sellers hopeful.”
“Buyers need acceptance above the 200-day SMA at 0.6629 for a sustained recovery. The next topside barriers are seen at the 0.6700 threshold and the 50-day SMA at 0.6730. On the flip side, a renewed decline could test the two-month low of 0.6537, below which the 0.6500 level will offer some respite to buyers. Further south, the August 6 low of 0.6472 will come into play,” Dhwani adds.
Economic Indicator
RBA Monetary Policy Statement
At the end of each of the Reserve Bank of Australia (RBA) eight meetings, the RBA’s board releases a post-meeting statement explaining its policy decision. The statement may influence the volatility of the Australian Dollar (AUD) and determine a short-term positive or negative trend. A hawkish view is considered bullish for AUD, whereas a dovish view is considered bearish.
Read more.Next release: Tue Nov 05, 2024 03:30
Frequency: Irregular
Consensus: -
Previous: -
Source: Reserve Bank of Australia
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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