Following its October monetary policy meeting, the Reserve Bank of Australia (RBA) board members decided to leave the Official Cash Rate (OCR) unchanged at 4.10%, as widely expected.
The RBA’s newly appointed and ninth governor, Michele Bullock, presented her first monetary policy statement, with the key highlights noted below.
Some further tightening of monetary policy may be required.
Board remains resolute in its determination to return inflation to target.
Recent data are consistent with inflation returning to target range over the forecast horizon.
Higher interest rates are working to establish a more sustainable balance between supply and demand in the economy.
Inflation in australia has passed its peak but is still too high and will remain so for some time yet.
Timely indicators on inflation suggest that goods price inflation has eased further, but the prices of many services are continuing to rise briskly.
Central forecast is for CPI inflation to continue to decline and to be back within the 2–3 percent target range in late 202.5
There are significant uncertainties around the outlook.
Returning inflation to target within a reasonable timeframe remains the board’s priority.
Inflation is coming down, the labor market remains strong and the economy is operating at a high level of capacity utilization.
AUD/USD reaction to the RBA interest rate decision
AUD/USD remains unperturbed by the RBA’s status quo, keeping its range near multi-day lows. The pair is trading at 0.6344, down 0.27% on the day.
AUD/USD: 15-minutes chart
Australian Dollar price today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the Japanese Yen.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
This section below was published at 00:45 GMT as a preview of the Reserve Bank of Australia (RBA) interest rate decision.
- Interest rate in Australia is seen on hold at 4.10% for the fourth straight meeting in October.
- Reserve Bank of Australia’s new Governor Michele Bullock could hint at more rate hikes.
- The Australian Dollar gears up for a big reaction to RBA policy announcement and guidance.
The Reserve Bank of Australia (RBA) is on track to keep its key interest rate unchanged for the fourth straight time on Tuesday, in a meeting that will be the first one for Michele Bullock as the new central bank Governor.
However, it remains to be seen if the newly appointed ninth Governor of RBA will leave the door open for more tightening by year-end.
Reserve Bank of Australia interest rate decision: All you need to know on Tuesday
- AUD/USD is sitting at three-day lows below 0.6300 as the US Dollar holds at 11-month highs.
- US S&P 500 futures trade modestly flat following a mixed close on Wall Street overniight. Meanwhile, the benchmark 10-year US Treasury bond yield consolidates gains above 4.60%.
- China’s business PMIs came in mixed over the weekend. The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) fell to 50.6 in September from 51.0 in the previous month, missing forecasts of 51.2. The services index dropped to 50.2 in September from 51.8 in August, the lowest reading since December.
- The official data released by China’s National Bureau of Statistics (NBS) showed on Saturday that the Manufacturing PMI and the Non-Manufacturing PMI outpaced expectations at 50.2 and 51.7, respectively, in September.
- On Friday, the Fed’s most preferred inflation measure, the Core Personal Consumption Expenditures (PCE) Price Index arrived at 0.1% MoM and 3.9% YoY in August, softening from the previous month.
- The RBA interest-rate decision could provide a temporary breather to the AUD/USD downside amid a Golden Week holiday in China. The Australian central bank will also publish its bi-annual Financial Stability Review report on Friday.
RBA interest rate expectations: How will it impact AUD/USD?
Economists expect the Reserve Bank of Australia to hold the Official Cash Rate steady at 4.10% after the conclusion of the first monetary policy meeting presided over by Governor Michele Bullock on Tuesday. The decision will be announced at 03:30 GMT.
All major local banks, ANZ, CBA, Westpac and NAB also predict the RBA to stand pat at this week’s meeting. Markets are pricing one final 25 basis points rate hike by the RBA in November before standing pat at least until March next year.
In the September policy statement, the RBA maintained that “some further tightening of monetary policy may be required.” Bullock and her colleagues are likely to stick to the language from the previous policy statement, keeping more interest rate hikes in the offing.
Although Australian Consumer Price Index (CPI) inflation ticked higher to 5.2% in August as against a 4.9% increase in July, experts say that the central bank will wait for the full quarterly inflation and labor market report due later this month to decide on the policy action beyond the October meeting.
The RBA will assess the lagging effects of the monetary policy tightening and the impact of the recent surge in Oil prices. Mounting risks to the Australian economic outlook will remain a major factor dissuading the Bank to hike rates on Tuesday.
Previewing the RBA policy decision, analysts at BBH said, “Reserve Bank of Australia meets Tuesday and is expected to keep rates steady at 4.10%. This will be new Governor Bullock’s first meeting and WIRP suggests no odds of a hike. However, those odds rise to nearly 35% on November 7, 45% on December 5, and top out above 95% in March. At the last meeting on September 5, the bank kept rates steady at 4.10% but warned that further tightening may be required.“
Therefore, the Australian Dollar (AUD) is set to witness intense volatility on the RBA policy announcement, as traders will look for fresh cues on Bullock’s path forward on interest rates.
Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes key technicals to trade AUD/USD on the policy verdict. “AUD/USD is back under the 21-day Simple Moving Average (SMA) at 0.6410 in the lead-up to the RBA showdown. The 14-day Relative Strength Index (RSI) is pointing south below the 50 level, keeping the downside risks intact for the Aussie pair.”
“The immediate support is seen at the September low of 0.6331. Further down, the 0.6300 round figure will be tested. On the flip side, acceptance above the 0.6450 level is needed to initiate a meaningful recovery toward the downward-sloping 50-day SMA at 0.6479. The next upside barrier is seen at the 0.6500 round level.”
Interest rates FAQs
What are interest rates?
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
How do interest rates impact currencies?
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
How do interest rates influence the price of Gold?
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
What is the Fed Funds rate?
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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