Reserve Bank of Australia Governor Michele Bullock said on Friday that the central bank remains focused on the potential upside risks to inflation, adding that it does not expect to cut rates in the near term.
Key quotes
- The board is of the view that it currently has the balance right between reducing inflation in a reasonable timeframe.
- Our full employment goal is not served by letting inflation stay above target indefinitely.
- The board remains focused on the potential upside risks to inflation.
- The board is trying to bring inflation back to target in a reasonable timeframe while preserving as many of the gains in the labour market that we have seen in the past few years.
- There has been further progress on inflation, but it has been very slow.
- The economic outlook remains highly uncertain.
- Underlying inflation remains too high.
- Based on what the board knows at present, it does not expect that it will be in a position to cut rates in the near term.
- The board’s message, though, was that it is premature to be thinking about rate cuts.
- While goods price inflation has declined substantially, it has not been enough to offset continued high service price inflation.
- Geopolitical issues could hinder global efforts against inflation
Market reaction
At the time of writing, AUD/USD is trading 0.02% higher on the day at 0.6615.
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.
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD holds higher ground above 0.6600 amid risk-on mood, hawkish RBA
AUD/USD holds higher ground above above 0.6600 early Friday. Thursday's stronger US macro data eased fears of a slowdown in the world's largest economy and boosted investors' confidence. The Aussie also cheers hawkish RBA Governor Bullock's comments.
USD/JPY extends pullback below 149.00 despite upbeat mood
USD/JPY extends losses below 149.00 early Friday, reversing the overnight rise to a nearly two-week high. The divergent BoJ-Fed policy expectations continue to weigh on the pair, though the risk-on mood could undermine the safe-haven Japanese Yen and help limit the pair's downside.
Gold price consolidates amid geopolitical risks, reduced bets for 50 bps Fed rate cut
Gold price failed to build on the overnight positive move in the wake of the upbeat US data. Easing US recession fears boost investors’ confidence and contribute to capping the metal. Geopolitical risks and bets on an imminent start of the Fed’s rate-cutting cycle lend support.
Ethereum's supply rises by over 210,000 ETH amid Vitalik Buterin's charity donation
Ethereum is down 0.7% on Thursday following three consecutive days of net inflows across ETH ETFs. Meanwhile, ETH's annual inflation rate has continued trending upward amid signs of a potential bullish reversal.
Asia week ahead: Central bank decisions set to dominate
Central bank decisions will dominate the week ahead in Asia, with policy announcements from the Bank of Korea, Bank Indonesia and People’s Bank of China.