Jump to content

Australian Dollar Stumbles Despite Hawkish RBA Tweaking Policy. Will AUD/USD Rally?


Recommended Posts

AUSTRALIAN DOLLAR, AUD/USD, RBA, ASX 200 - TALKING POINTS

  • The RBA left the official cash rate at 0.10% as expected despite high CPI
  • Asset purchases will cease, the roll-over of maturing bonds is undecided
  • AUD/USD had been supported in the lead up. Looks like too many longs?
Australian Dollar Stumbles Despite Hawkish RBA Tweaking Policy. Will AUD/USD  Rally?

The following is from today’s RBA decision, verbatim.

At its meeting today, the Board decided to maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances at zero per cent. It also decided to cease further purchases under the bond purchase program, with the final purchases to take place on 10 February.

Although this was largely expected, the market had been leaning more hawkish than was delivered. The fate of the maturing bonds is unknown as they have not decided if they will re-invest the proceeds or not.

Last week saw Australian inflation come in hot for the fourth quarter of 2021.

Australian Dollar Stumbles Despite Hawkish RBA Tweaking Policy. Will AUD/USD Rally?

The RBA stated, “The central forecast is for underlying inflation to increase further in coming quarters to around 3¼ per cent, before declining to around 2¾ per cent over 2023.”

Underlying inflation is the trimmed mean measure of CPI. This is where the market was probably disappointed. In the December statement, they referred to underlying inflation being sustainably within the 2-3% band before they would act on rates.

At 2.6%, the market saw this as being ensconced in the target band. In fairness, getting rid of the bond asset purchase program opens the way for future rate hikes. The market may have got ahead of itself a touch here, hence the disappointment.

Keeping in mind that AUD/USD had rallied over 1% the day before, it turns out to be a classic buy the rumour, sell the fact day of trading.

AUD/USD 1 MINUTE CHART

Australian Dollar Stumbles Despite Hawkish RBA Tweaking Policy. Will AUD/USD Rally?

Chart created in TradingView

Going into today’s meeting, the ASX 200 was slightly higher by around 0.3% and continued to gain to ground in the immediate aftermath.

Interestingly this morning, the chairman of Australia’s sovereign wealth fund, Peter Costello, said that the fund had reduced its exposure to risky assets, including listed equities. He cited the end of extraordinary loose fiscal and monetary policy for the re-weighting within the Future Fund.

Earlier in the day retail sales printed at -4.4% month-on-month for December against expectations of -2.0% and 7.3% prior.

Looking ahead for the Aussie, Thursday this week will see building approvals and international trade data for December.

The full statement from the RBA can be read here.

 

Written by Daniel McCarthy, Strategist for DailyFX.com. 1st Feb 2022

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
×
×
  • Create New...