RBA Minutes show rising concern that inflation pressures may be more persistent
The Reserve Bank of Australia (RBA) published the Minutes of its December monetary policy meeting on Tuesday, which showed that board members signalled growing less confident that monetary policy remains restrictive, as evidence mounts that inflation pressures may prove more persistent than previously expected.
Additional takeaways
Recent data indicated risks to inflation have increased to the upside.
Needed to observe how recent rise in bond yields affected financial conditions.
Economy operating with excess demand, unclear whether financial conditions are tight enough.
Board judged labor market was still somewhat tight and output gap positive.
Would assess policy at future meetings, noted G4 inflation data were released before February meeting.
Discussed whether a rate increase might be needed at some point in 2026.
Board felt it would take a little longer to assess persistence of inflation.
Some members felt conditions were no longer restrictive, some felt they were somewhat restrictive.
Board judged it too early to know whether rise in inflation would prove persistent.
Possible holding cash rate steady for some time may be sufficient to keep economy in balance.
Full impact of policy easing this year was yet to be felt.
Measures of capacity utilisation indicated supply constraints.
Market reaction
At the time of press, the AUD/USD pair is up 0.11% on the day at 0.6663.
Australian Dollar Price This week
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this week. Australian Dollar was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.41% | -0.65% | -0.60% | -0.35% | -0.78% | -1.04% | -0.43% | |
| EUR | 0.41% | -0.23% | -0.22% | 0.06% | -0.36% | -0.63% | -0.01% | |
| GBP | 0.65% | 0.23% | 0.13% | 0.29% | -0.14% | -0.40% | 0.21% | |
| JPY | 0.60% | 0.22% | -0.13% | 0.27% | -0.14% | -0.40% | 0.07% | |
| CAD | 0.35% | -0.06% | -0.29% | -0.27% | -0.33% | -0.66% | -0.07% | |
| AUD | 0.78% | 0.36% | 0.14% | 0.14% | 0.33% | 0.03% | 0.35% | |
| NZD | 1.04% | 0.63% | 0.40% | 0.40% | 0.66% | -0.03% | 0.62% | |
| CHF | 0.43% | 0.01% | -0.21% | -0.07% | 0.07% | -0.35% | -0.62% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
This section was published on December 22 at 22.36 GMT as a preview of the RBA Minutes release.
The RBA Minutes Overview
The Reserve Bank of Australia (RBA) will publish its minutes of its monetary policy meeting on Tuesday at 00.30 GMT. It provides a detailed record of the discussions held between the RBA’s board members on monetary policy and economic conditions that influenced their decision on adjusting interest rates and/or bond buys, significantly impacting the AUD.
The minutes also reveal considerations on international economic developments and the exchange rate value.
How could the RBA Minutes affect AUD/USD?
AUD/USD trades on a positive note on the day in the lead up to the RBA Minutes. The pair gathers strength as the US Dollar (USD) weakens amid expectations for a dovish Federal Reserve (Fed) monetary policy path into 2026.
If the RBA is hawkish about the inflationary outlook for the economy, it could lift the Australian Dollar (AUD), with the first upside barrier seen at the December 11 high of 0.6680. The next resistance level emerges at the September 17 high of 0.6707, en route to the July 15, 2024, high of 0.6788.
To the downside, the December 18 low of 0.6592 will offer some comfort to buyers. Extended losses could see a drop to the 100-day Exponential Moving Average (EMA) of 0.6545. The next contention level is located at the November 4 low of 0.6481.
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
