RBA’s Lowe: Effectiveness of yield target as a monetary policy tool declined

Dhwani Mehta FXStreet

The Reserve Bank of Australia (RBA) Governor Phillip Lowe said the following in the press conference, following the central bank’s monetary policy decision announced earlier this Tuesday.

Key quotes

The yield target has been effective and has supported the recovery of the Australian economy.

But its effectiveness as a monetary policy tool declined as expectations about future interest rates shifted due to the run of data and the forecast progress towards our goals.

I want to make it clear that this decision does not reflect a view that the cash rate will be increased before 2024.

There is genuine uncertainty as to the timing of future adjustments in the cash rate.

It is still entirely possible that the cash rate will remain at its current level until 2024.

Our forward guidance is based on the state of the economy, not the calendar.

The latest data and forecasts do not warrant an increase in the cash rate in 2022.

We will be including the April 2024 bond in our regular auctions from next week.

Underlying inflation reached the midpoint of the target range for the first time in seven years does not, by itself, warrant an increase in the cash rate.

Configuration of inflation and wages growth allows the board to be patient in considering a lift in interest rates.

Board judged that it was no longer sustainable to maintain the target of 10 basis points.

Prepared to look through spikes in the inflation rate.

Market reaction

The aussie dollar is little changed on these comments, as AUD/USD keeps its range around 0.7495, down 0.43%, as of writing.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

USD/JPY eyes August swing low, near 155.20 ahead of US NFP

USD/JPY retests the August monthly swing low during the Asian session on Friday as a more hawkish repricing of BoJ rate-hike bets and a suspected intervention continue to underpin the Japanese Yen. Meanwhile, the US Dollar is seen consolidating the previous day's heavy losses amid soft US bond yields, further weighing on the currency pair as traders keenly await the US NFP report.

AUD/USD consolidates above 0.7200; US NFP awaited

AUD/USD holds steady above 0.7200, near its highest level since mid-May, as bulls await the US NFP report for more cues on the Fed's policy path before placing fresh bets. Meanwhile, the recent decline in US bond yields keeps the US Dollar depressed near its lowest level in over a week and acts as a tailwind for the Aussie amid the RBA's hawkish tilt.

Gold tumbles as blockbuster US NFP lift US Dollar, Treasury yields

Gold (XAU/USD) falls sharply on Friday, snapping a two-day recovery after the US Nonfarm Payrolls (NFP) report surprised strongly to the upside. The metal briefly climbed above $4,500 on Thursday, gaining nearly 2%, but has since erased a large part of that advance.

Crypto’s $638 million buyback boom may not be as bullish as it looks

Decentralized Finance (DeFi) protocols reportedly spent $638 million to buy back their native tokens in August, up 17% from a year earlier. On the surface, the buyback trend suggests the cryptocurrency industry is maturing fast, adopting one of Wall Street’s oldest tools to bolster valuations and distribute revenue. The headline becomes less impressive once the number is opened up.

Why hawkish Bank of Japan expectations aren't enough to sustain the Japanese Yen rally

The Japanese Yen (JPY) experienced a sudden burst higher after falling back below the 160.00 psychological mark against the US Dollar (USD) earlier this week amid a more hawkish repricing of Bank of Japan (BoJ) rate hike expectations.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.