RBA set to leave interest rate steady for ninth consecutive meeting
- The Reserve Bank of Australia is expected to hold the interest rate at 4.35% in December.
- Australian central bank Governor Michele Bullock’s comments will be closely scrutinized to gauge when could the RBA trim its benchmark rate.
- The volatility around the Australian Dollar is set to ramp up on the RBA policy announcements.
The Reserve Bank of Australia (RBA) is unlikely to alter its stance on the monetary policy for the ninth meeting in a row on Tuesday.
The RBA is expected to hold the Official Cash Rate (OCR) steady at 4.35% following its final policy meeting this year. The decision will be announced at 03:30 GMT and Governor Michele Bullock’s press conference will follow at 04:30 GMT.
Focus on RBA Governor Bullock’s outlook on interest rate
The RBA remains an outlier among many other central banks from developed markets that already embarked on the easing trajectory. Elevated core and services inflation and relatively tight labor market conditions in Australia are the primary reasons behind the bank’s cautious stance.
The Australian Unemployment Rate remained at 4.1% in October for the third consecutive month. The economy added 9,700 full-time jobs and 6,200 part-time roles, making a net change of 15,900 positions. The RBA’s closely-watched inflation gauge, the annual Trimmed Mean Consumer Price Index (CPI), slowed to 3.5% from 4.0% in the third quarter but stayed well above the Bank’s 2%-3% target.
RBA Governor Michele Bullock said late last month that “given the tightness in Australia’s labor market, along with our assessment that the level of demand still exceeds supply in the broader economy, we expect it will take a little longer for inflation to settle at target.”
She further noted that Australia’s core inflation is “too high” to consider interest rate cuts in the near term.
However, Australia's economy in the third quarter grew at the slowest annual pace since the pandemic. The OZ nation’s Gross Domestic Product (GDP) rose 0.3% in the September quarter, missing market forecasts of 0.4%. The surprisingly weak growth numbers undermined the RBA’s forecast for a 1.5% growth by the end of the year.
Weaker-than-expected GDP growth made markets almost fully price in a rate cut next April at 96% (from 73% before) and saw 35 basis points (bps) easing for May (from 28 bps before), according to Refinitive interest rate probabilities data.
Therefore, the policy statement and Governor Bullock’s comments will be key to determining the RBA’s outlook on rates heading into the new year.
Previewing the RBA policy decision, TD Securities (TDS) analysts said: “Q3 GDP underwhelmed, but it's unlikely to influence the RBA's monetary policy outlook. Unless there are sharp job losses and the unemployment rate rises to 4.5% in short order, the absolute earliest the Bank could cut is in May. We are calling August.”
How will the Reserve Bank of Australia decision impact AUD/USD?
RBA Governor Michele Bullock is widely expected to repeat that “the Board is not ruling anything in or out” and “think there are still risks on the upside for inflation.” The Bank’s wait-and-see approach will likely provide the much-needed respite to the Australian Dollar (AUD), lifting the AUD/USD pair from four-month troughs below 0.6400.
If Bullock expresses concerns about the slowing economy while noting that the Board discussed rate cuts as an option at the meeting, the Aussie is expected to face intense selling pressure, revisiting levels last unseen since October 2023.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes key technicals for trading AUD/USD on the policy announcements.
“After charting a 50-day Simple Moving Average (SMA) and 200-day SMA Death Cross on December 4, AUD/USD remains exposed to downside risks in the run-up to the RBA showdown. The 14-day Relative Strength Index (RSI) remains way below the 50 level, currently near 40, adding credence to bearish potential.”
“A dovish surprise from the Bank could fuel a fresh AUD/USD decline toward the August 5 low of 0.6348, below which the 0.6300 level will come into play. The next downside target aligns at the October 2023 low of 0.6270. Alternatively, buyers need acceptance above the 21-day SMA at 0.6484 to initiate a meaningful recovery. Further up, the November 25 high of 0.6550 will be tested before encountering major daily SMAs near the 0.6620 region,” Dhwani adds.
Australian Dollar PRICE This year
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this year. Australian Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 4.46% | -0.29% | 6.68% | 6.72% | 5.78% | 7.80% | 4.54% | |
| EUR | -4.46% | -4.55% | 1.92% | 2.19% | 1.28% | 3.19% | 0.07% | |
| GBP | 0.29% | 4.55% | 6.92% | 6.85% | 6.11% | 8.11% | 4.84% | |
| JPY | -6.68% | -1.92% | -6.92% | 0.04% | -0.84% | 1.09% | -2.06% | |
| CAD | -6.72% | -2.19% | -6.85% | -0.04% | -0.96% | 1.01% | -2.16% | |
| AUD | -5.78% | -1.28% | -6.11% | 0.84% | 0.96% | 1.90% | -1.18% | |
| NZD | -7.80% | -3.19% | -8.11% | -1.09% | -1.01% | -1.90% | -3.03% | |
| CHF | -4.54% | -0.07% | -4.84% | 2.06% | 2.16% | 1.18% | 3.03% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.