Australia Interest Rate Decision Preview: RBA set to stand pat after discussing rate hikes in February
- Interest rate in Australia is seen on hold at 4.35% for the third consecutive meeting in March.
- Reserve Bank of Australia Governor Michele Bullock will hold a press conference at 04:30 GMT.
- The language in the RBA’s statement and Bullock’s presser hold the key for the Australian Dollar.
The Reserve Bank of Australia (RBA) is widely expected to hold the Official Cash Rate (OCR) steady at a 12-year high of 4.35% following the conclusion of its March monetary policy meeting on Tuesday. The decision will be announced at 03:30 GMT.
With a rates on-hold decision fully baked in, the Australian Dollar’s fate hinges on the tone or language in the policy statement, as well as on Governor Michele Bullock’s comments during the post-policy press conference. The presser will be held at 04:30 GMT.
Reserve Bank of Australia expected to extend the pause, but what’s next?
The RBA is set to extend the pause into the third meeting in a row when it meets on Tuesday. Markets, however, will be focused on fresh signals offered by the central bank on the timing and the scope of a policy pivot.
Economists are divided, with some forecasting an RBA interest rate cut not until November while some expect the Bank to begin lowering rates in September. Amidst the uncertainty around the timing of the rate cut, RBA Governor Michele Bullock’s outlook on inflation and the policy rate will hold the key, as she would take account of slowing economic growth and price pressures.
Data from the Australian Bureau of Statistics (ABS) showed the Consumer Price Index (CPI) rose 0.6% in the fourth quarter (Q4) of last year, under market forecasts for a 0.8% increase. A closely watched measure of core inflation, the trimmed mean, rose 0.8% in the same period, below expectations of a 0.9% increase.
The latest monthly inflation data for January showed that the CPI rose at an annual rate of 3.4%, at the same pace as seen in December while a tad lower than the estimate of 3.5%. Meanwhile, Australia’s annual growth slowed to 1.5% in Q4 from 2.1% the previous quarter, registering its lowest since early 2021.
But, the services inflation, measured by the Wage Price Index, increased 4.2% YoY in Q4, up from a revised 4.1% gain in the third quarter and above the market estimate of 4.1%. The reading was the highest since Q1 2009, with pay growth in both the public and private sectors.
Even though wage inflation remains at elevated levels, Governor Bullock remains confident that it will come down. Testifying before the Australian Parliament last month, Bullock said that “inflation is being persistent, particularly in services. But it is coming down.”
Does this indicate a potential dovish shift in the central bank’s language in the upcoming meeting?
Previewing the RBA policy decision, analysts at TD Securities (TDS) explained, “it should be a fairly straightforward on-hold decision, though the focus will be if the RBA retains its soft hawkish bias. The jobs market has shown cracks after the dismal Dec-Jan prints while monthly CPI reaffirms the disinflation narrative, with the near-term inflation impulse towards the downside. We will keep an eye out on QT plans as the RBA has kept strangely quiet about it.”
How will the RBA interest rate decision impact AUD/USD?
The Australian Dollar (AUD) has entered corrective mode after reaching fresh two-month highs at 0.6667 against the US Dollar last week. The AUD/USD pair could see an extended pullback if Governor Bullock delivers a dovish message, acknowledging the economic slowdown and the gradual decline in inflation. On the other hand, AUD/USD could revert toward multi-month highs should the RBA policymakers retain their hawkish stance.
In its February policy statement, the RBA said that “Further increase in interest rates can't be ruled out, adding that the board needs to be confident that inflation is moving sustainably towards the target range.”
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes key technicals to trade AUD/USD on the policy outcome. “AUD/USD is challenging a powerful confluence support area near 0.6560 in the lead-up to the RBA showdown. That zone is the intersection of the 21-, 50- and 200-day Simple Moving Averages (SMA). The 14-day Relative Strength Index (RSI) is battling the 50 level, suggesting that the pair lacks a clear directional bias ahead of the RBA interest rate decision.”
Dhwani adds: “Aussie buyers need to defend the abovementioned key support near 0.6560 on a daily closing basis to attempt a rebound toward the previous week’s high of 0.6638. The next upside barrier is seen at the 0.6700 round figure. Conversely, a downside break of the 0.6560 support could trigger a fresh downtrend toward the 0.6500 level. The last line of defense for buyers is seen at 0.6479, the March 5 low.”
We see scope for AUD/USD to move to 0.7000 on a 12-month horizon. That said, we also see the potential for further dips back to 0.6500 in the one-to-three-month horizon on further bouts of USD strength.
– Rabobank
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 weakest against the New Zealand Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.04% | 0.00% | -0.06% | -0.08% | 0.14% | -0.10% | 0.02% | |
EUR | 0.04% | 0.03% | -0.02% | -0.05% | 0.17% | -0.06% | 0.02% | |
GBP | 0.00% | -0.04% | -0.05% | -0.08% | 0.14% | -0.09% | -0.01% | |
CAD | 0.06% | 0.02% | 0.06% | -0.02% | 0.20% | -0.04% | 0.07% | |
AUD | 0.08% | 0.05% | 0.08% | 0.03% | 0.22% | -0.01% | 0.06% | |
JPY | -0.14% | -0.19% | -0.08% | -0.18% | -0.23% | -0.23% | -0.14% | |
NZD | 0.10% | 0.06% | 0.09% | 0.04% | 0.01% | 0.24% | 0.07% | |
CHF | 0.01% | -0.02% | 0.00% | -0.05% | -0.06% | 0.15% | -0.09% |
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).