As inflation soars, the Reserve Bank of Australia (RBA) plans on maintaining key interest rate.

Interest rate will likely remain at 4.35per cent for Australia this month and Reserve Bank of Australia Governor Michele Bullock may opt to keep her options open in order to support an Australian Dollar rally via an overtly hawkish RBA.

On Tuesday morning, the Reserve Bank of Australia (RBA) will release its announcement regarding monetary policy decisions early. Australian policymakers are widely expected to keep the Official Cash Rate (OCR) unchanged at 4.35% as was done at March meeting when references for potential rate hikes were removed from Board’s statement and as resultantly the Australian Dollar (AUD) experienced considerable downward momentum.

Since that time, much has changed: both monthly Consumer Price Indices (CPIs) rose 3.5% year over year for March; on the other hand, wage growth showed continued upward pressure – rising 4.2% annually during Q4 2023.

What will change at the Reserve Bank of Australia in 2017-18? Nothing…

Market players anticipate no change from the RBA this month; however, market players remain wary that policymakers could reinstate hawkish tendencies due to inflation spikes coupled with tight job markets spooking any chances for rate cuts in the near future. Instead, investors seem keener on betting on potential rate hikes rather than any reduction of benchmark rates; an idea made more plausible as RBA has delayed rate increases well below major counterparts.

Prior to Governor Michele Bullock and co’s announcement on December 5th 2024, speculation mounts as market players anticipate additional tightening by increasing odds for an interest rate increase at that time. Market players increasingly anticipate an interest rate hike occurring around November 2024.

Governor Bullock made clear in her press conference following March decision that she wouldn’t rule anything in or out, adding that inflation must move sustainably towards her target range of 2%-3%. At that time, her confidence appeared unwavering but this optimism eventually faded as macroeconomic data did not support loosening speculations.

Australian Bureau of Statistics (ABS) reports show the Consumer Price Index rose 1.0% year-on-year over twelve months through to March 2024 quarter – actually lower than 4.1% annual inflation seen the prior quarter and marking five consecutive quarterly decreases despite still exceeding RBA target inflation rates by 0.6% annually.

Analysts from TD Securities highlighted that Australia’s latest employment data would likely not prompt RBA to lower policy rate any time soon: headline employment fell 6.6k month-on-month (softer than consensus expectation of +10k and our forecast of 18k), giving back some of February’s notable job gain: this gave way to negative print of part-time decline of 34.5k; full time rose 27.9k while there were positive revisions for February (66k fall in part-time employment is driving this result)”

Investors have spent much of this year placing bets on when and if major central banks will reduce interest rates, with most pricing in earlier or later movements. Not so in Australia; with only 30% odds that interest rate hike could occur by November; nothing is priced into Australia itself yet and Tuesday’s announcement may set speculation in motion and prompt aggressive price action around AUD assets.

RBA will publish its most up-to-date economic forecasts this Friday. In February, central bank economists predicted trimmed mean inflation would decline from 3.1% at year’s end to 2.8% a year later before returning back towards its original 2%-3% target by mid-2024. On growth forecasting front, policymakers projected GDP would reach 1.3% during quarter two, before gradually rising thereafter up until reaching 2.4% by mid-2026.

With unexpectedly higher-than-anticipated inflation seen during the first three months, it seems likely that the Reserve Bank of Australia will review their inflation projections; growth figures, in contrast, may face minor revisions; market participants should pay particular attention to whether June 2026 projections have moved further away than expected.

How will RBA’s interest rate decision have an effect on AUD/USD?

Before today’s announcement, the AUD/USD pair is trading above 0.6600 as the US Dollar falls victim to an less-than-hawkish Federal Reserve (Fed). While policymakers at the Fed have stated clearly that interest rates will stay elevated for an extended period, leaving open the possibility for rate cuts later this year.

Financial markets remain buoyant despite global evidence of persistently high inflation; stock market strength underpinning AUD/USD.

Valeria Bednarik, Chief Analyst for FXStreet says that should the RBA deliver a hawkish message, the AUD/USD pair could extend its rally. Flipping back to potential rate hikes could act as an entry signal for longs looking to add long positions; as sellers were found at both price zones 0.6640 in March and in the 0.6660 area in April; large stops should accumulate above this area before setting their trigger; should those be hit, an upswing towards 0.6700 is expected; with next resistance level being set at 0.6730 before eventually reaching final target at 0.6770.”

Bednarik goes further by noting: “Speculative interest may be frustrated if this situation continues. If AUD/USD falls towards 0.6560 prices zone or even further below it reveals potential targets at 0.65050.”

Australian Dollar (AUD)iterfuhrende The Reserve Bank of Australia’s (RBA) interest rates play a vital role in shaping its value, alongside commodity export prices like iron ore and economic health of major trading partner China as well as inflation in Australia, growth rate and Trade Balance data. Market sentiment – whether investors favor riskier assets (risk-on) over safer ones (risk-off) – plays its own part; risk on has the tendency of strengthening an AUD more significantly.

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting interest rates that banks lend each other, thus impacting on overall economic interest rates and inflation rates. Their main aim is to maintain 2-3% inflation through fluctuation of interest rates up or down; relative high rates versus other major central banks tend to strengthen it while low ones weaken it; they can also use quantitative easing and tightening to alter credit conditions – with former being seen as negative influences and latter more positively received by Australian consumers.

China is Australia’s primary trading partner and so its economic health can have an enormous impact on its currency (AUD). When Chinese consumption surges, Australian imports increase and thus demand rises – driving its value higher and its inverse effect when economic activity stagnates – meaning unexpected developments such as positive or negative surprises can quickly have an affective response that impacts on Australian dollar pairs directly.

Iron Ore is Australia’s top export, accounting for $118 billion annually according to 2021 data, and China as its primary destination. Iron Ore prices therefore serve as a powerful driver for the Australian Dollar; when Iron Ore prices increase, so too does demand for Australian currency as aggregate demand grows and vice versa; lower iron Ore prices typically result in reduced aggregate demand which also pushes it lower and the opposite is often true if Iron Ore prices decrease; higher Iron Ore prices often lead to greater Trade Balance gains for Australia which helps boosts demand while increased likelihood also serves to support an upward move of the AUD against foreign rivals as Chinese imports compete for imports; making for another factor behind how Iron Ore prices influences the Australian dollar-US exchange rate pairing this currency pair’s performance relative against foreign counterparts as China becomes the primary recipient for imported exports of exporting iron Ore, making up 16% of Australian trade Balance gains which impacts on its economy-US Dollar against its major competitors like China being supplied from Australia being import- export-II/ China’s consumption increase can cause increases as aggregate demand increase as aggregate demand increase which drives up against its devaluations against its own devaluation against currency devalue it against Australia being traded is likely resultant to the Australian dollar against Australia’s own trade balance gainfull resultantly effectual. Higher Iron Ore Prices results more often results in positive Trade Balance positive trade Balance figures positive impactful for Australia trade balance gain which, again positively represented in positive.

Trade Balance, defined as the difference between what a country earns from exports versus its payments for imports, can have an enormous impact on its currency’s value. If Australia produces highly sought after exports that attract international buyers then their currency would benefit due to excess demand created from buying those exports over what was spent purchasing imports; hence a positive net Trade Balance strengthens it while an adverse one weakens it;

Economic Indicator RBA Interest Rate Decision.

The Reserve Bank of Australia (RBA) typically announces their interest rate decision after each of the eight scheduled meetings each year, typically on May 18 and September 17. A decision by the RBA which favors inflation by raising rates can often be seen as positive for Australian Dollar (AUD), while keeping interest rates unchanged or cutting them is often perceived negatively for this currency.
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