Tue, Feb 20, 2024

AUDUSD is moving in a ascending channel and the market has fallen from the higher high area of the channel

The Reserve Bank of Australia has decided to maintain the interest rates at 4.35% today. This decision comes as a response to the economy’s easing, which has surpassed the inflation rate, and the fluctuations in employment. The November reports for Judo Bank Services and composite PMI both revealed lower figures than anticipated. Furthermore, this trend has persisted from the previous month, compelling the RBA to keep the rates stable at their current level.

RBA Holds Interest Rates at 4.35%

In a recent decision, the Reserve Bank of Australia chose to keep its benchmark interest rate steady at 4.35%. This move was largely expected by financial markets and followed a previous rate hike. The decision reflects the RBA’s cautious approach to managing the Australian economy, particularly in response to changing economic conditions.

Reserve Bank of Australia chose to keep its benchmark interest rate steady at 4.35%

Previous Rate Hike and Changing Economic Conditions

In the prior meeting, the RBA had raised interest rates due to several key factors. Rising inflationary pressures, increasing housing prices, and a tight labor market played a pivotal role in the RBA’s assessment. However, since that time, economic conditions have evolved. Monthly CPI indicator data has softened, indicating a potential easing of inflationary pressures. The impact of the previously restrictive monetary policy has also begun to weigh on housing prices. Additionally, there has been a slight weakening in the labor market.

Concerns About the Robust Job Market

One of the notable concerns for the RBA is the remarkably robust job market in Australia, similar to the situation in the United States. The strong labor market can create inflationary pressures and impact monetary policy decisions.

AUDUSD is moving in a descending channel and the market has reached the lower high area of the channel

AUDUSD is moving in a descending channel and the market has reached the lower high area of the channel

The RBA will closely monitor this variable as it evaluates future policy moves.

Market Expectations and Rate Cut Projections

Financial markets have reacted to changing economic conditions by pricing in approximately 13 basis points of additional cumulative rate cuts by December 2024

Financial markets have reacted to changing economic conditions by pricing in approximately 13 basis points of additional cumulative rate cuts by December 2024 in just one week. However, there remains room for potential rate hikes if deemed necessary. The RBA is expected to remain data-dependent in its decision-making process, but it’s worth considering that we may be approaching the peak of the interest rate cycle, aligning with the strategies of other major central banks in 2024.

Potential Dovish Repricing and AUD Vulnerability

As market expectations shift, there is the possibility of a dovish repricing of the RBA’s outlook.

AUDUSD is moving in a descending triangle pattern and the market the reached the support area of the pattern

AUDUSD is moving in a descending triangle pattern and the market the reached the support area of the pattern

This could leave the Australian dollar (AUD) vulnerable to depreciation, particularly if the RBA adopts a more accommodative stance in response to economic challenges.

Economic Indicators and Current Account

Q3 slipped into negative figures

Leading up to the rate announcement, Judo Bank PMI data was released, highlighting a further contraction in the Australian economy. Both services and composite metrics reached yearly lows, underscoring the slowdown. Additionally, the current account for Q3 slipped into negative figures for the first time since Q3 of 2022, signaling ongoing concerns about depressed growth.

Focus on US Data and Non-Farm Payrolls

Looking ahead, market attention will shift to US economic data, specifically the ISM services PMI and JOLTs data. These indicators will be closely watched as markets prepare for the release of Non-Farm Payrolls data on Friday, which can significantly influence currency markets, including the AUDUSD pair.


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