Fri, Apr 19, 2024

AUDUSD is moving in the Descending channel and the market has reached the lower low area of the channel

RBA is expected to hold the rates at this meeting as 4.10%, CPI is slowdown to the 4.9% in July from 5.4% in June month So Further rate hike is more doubtful

In the midst of a global economic landscape marked by uncertainty and fluctuation, the Reserve Bank of Australia (RBA) is poised to make crucial decisions regarding its key interest rate. As inflation shows signs of easing, economists have been closely monitoring the RBA’s stance, trying to predict its next moves. This article explores the recent developments, expert opinions, and economic indicators surrounding the RBA’s decision-making process.

The Current Economic Climate

Inflation Slows but Remains Above Target

Inflations 1

In July, consumer inflation in Australia experienced a notable decline, falling to a 17-month low of 4.9%, down from 5.4% in June. While this slowdown is encouraging, it still exceeds the central bank’s target range of 2-3%. This persistent inflationary pressure has kept the anticipation of future rate hikes alive, causing economists to scrutinize the RBA’s monetary policy decisions closely.

RBA’s Monetary Policy Decision

The RBA’s monetary policy decision is set to be unveiled soon. It is widely expected that there will be no change in the policy cash rate, which currently stands at 4.10%. This expectation is reinforced by the recently released monthly Consumer Price Index (CPI) indicator, which showed a slowdown to 4.9% year-on-year (y/y) from 5.4% y/y, marking its slowest pace of increase since February 2022 and falling below consensus estimates of 5.2% y/y.

Market Sentiment and Futures

EURAUD M30 TF Analysis Market is moving in the Descending channel and the market has reached the lower high area of the channel

EURAUD is moving in the Descending channel and the market has reached the lower high area of the channel

Surprisingly, the ASX 30-day interbank cash rate futures for the September 2023 contract indicate a 14% chance of a 25-basis point rate cut on the cash rate to 3.85% for the upcoming RBA meeting, based on data as of August 31, 2023. This probability has slightly increased from a week ago when it stood at 12%. These market dynamics reflect the uncertainty and cautious optimism surrounding the RBA’s next move.

Expert Insights on RBA’s Future Moves

Westpac Banking Corp’s Outlook

AUSTRALIA SYDNEY Westpacs HQ

Westpac Banking Corp’s economics team anticipates that the RBA will maintain its current rate, keeping rates steady at 4.10% for the time being. What sets their projection apart is their belief that this rate will remain unchanged until the same period next year. Moreover, Westpac predicts that the RBA will initiate a series of rate cuts at that juncture. Chief economist Bill Evans acknowledges the challenges in reading the RBA’s monetary policy, particularly in 2023, characterized by shifting weights on inflation and cumulative tightening effects. Evans advocates for a wait-and-see approach until the September quarter of the following year to assess inflation, growth, and unemployment before unwinding rate hikes.

ANZ Research’s Perspective

GBPAUD Daily TF Analysis Market is moving in an Ascending channel and the market has reached the higher low area of the channel

GBPAUD is moving in an Ascending channel and the market has reached the higher low area of the channel

ANZ Research shares the view of an extended pause from the RBA, with the cash rate expected to remain at 4.10% well into 2024. They suggest that in late 2024, the RBA might opt for a 0.25% rate cut, depending on various factors, including whether inflation aligns with the RBA’s target band. ANZ senior economist Adelaide Timbrell emphasizes that the impact of this extended pause on consumer confidence remains uncertain, given the persistently high inflation and its impact on real wages.

Commonwealth Bank’s Analysis

Commonwealth Bank, too, foresees an extended pause from the RBA, with the cash rate expected to stay at 4.10% until the first quarter of 2024. The bank predicts that the RBA could begin cutting the cash rate at its meeting scheduled for March 18-19, 2024. Senior economist Belinda Allen emphasizes that the data flow and the significant rate hikes delivered thus far make the decision clearer in September. However, CBA anticipates that the RBA may still consider the case for a hike while maintaining a tightening bias. They also note that inflation is progressing toward the RBA’s target, potentially affecting future rate cut timelines.

Australian Economic Outlook

National Australia Bank’s Projection

National Australia Bank (NAB) predicts that the RBA will keep the national cash rate on hold at 4.10% in September 2023. However, NAB does not foresee an extended pause and expects one more rate hike in November 2023, taking the cash rate to a peak of 4.35%. NAB emphasizes that the Board seems willing to wait for further reasons to raise rates.

AUDCAD H4 TF Analysis Market is moving in the Descending channel and the market has reached the lower high area of the channel

AUDCAD is moving in the Descending channel and the market has reached the lower high area of the channel

The bank suggests that the strength of inflation in the third quarter of the year could prompt the Board to take further measures against persistently high inflation. Following this potential hike, NAB expects the RBA to maintain the cash rate until August 2024, after which they will begin cutting the rate, ultimately reaching around 3% by early 2025.

Westpac’s Revised View

Westpac’s chief economist, Bill Evans, has shifted his perspective in light of recent developments. While the August rate pause surprised many, Westpac now believes that the cash rate will remain at 4.10%, with the next move expected to be a rate cut, although not until the September quarter of the following year. However, concerns about productivity and labor costs could potentially constrain the RBA’s easing of monetary policy, as inflation may take longer to return to the desired range or remain above the target.

Impact on Australia’s Economy

Impact on Australia's Economy

The RBA’s decision to maintain the cash rate at 4.10% provides the central bank with additional time to assess whether wage increases are gaining momentum. This evaluation is crucial in understanding the broader economic landscape, as wage growth plays a pivotal role in curbing inflation. The Australian Bureau of Statistics will release the June quarter wage price index numbers, offering further insights into this aspect.

Despite the recent decision, the Australian dollar experienced a decline in the aftermath, trading below 66.7 US cents.

AUDNZD Weekly TF Analysis Market is moving an Ascending channel and the market has rebounded from the higher low area of the channel

AUDNZD is moving an Ascending channel and the market has rebounded from the higher low area of the channel

However, stocks reacted positively, doubling their gains for the day and rising by approximately 0.8%. This market response reflects the complex relationship between interest rates, currency values, and corporate profits, highlighting the importance of the RBA’s monetary policy decisions on multiple fronts.

Conclusion

As the Reserve Bank of Australia navigates the intricate web of economic indicators, inflationary pressures, and global economic uncertainties, its decision regarding the key interest rate remains a critical factor in shaping Australia’s economic future. While experts hold differing views on the timing and direction of future rate changes, the RBA’s commitment to monitoring inflation, productivity, and employment will guide its monetary policy decisions in the coming months. The impact of these decisions extends far beyond the financial markets, influencing the daily lives of Australians and the overall health of the nation’s economy. In this dynamic economic landscape, each monetary policy announcement becomes a pivotal moment in Australia’s economic journey.


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