- The Reserve Bank of Australia is expected to keep its interest rate at 4.35% in December.
- Australian central bank governor Michele Bullock’s comments will be closely scrutinized to assess when the RBA might cut its benchmark interest rate.
- Volatility around the Australian dollar will escalate following RBA policy announcements.
The Reserve Bank of Australia (RBA) is unlikely to change its monetary policy stance on Tuesday for the ninth year in a row.
The RBA is expected to keep the Official Cash Rate (OCR) steady at 4.35% after its last meeting this year. The decision will be announced at 03:30 GMT and Governor Michele Bullock’s press conference will take place at 04:30 GMT.
Focus on RBA Governor Bullock’s views on interest rates
The RBA remains an outlier among many other developed market central banks that have already embarked on an easing path. Elevated core and services inflation and relatively hard labor market conditions in Australia are the main reasons for the bank’s cautious stance.
Australia’s unemployment rate remained at 4.1% in October for the third month in a row. The economy added 9,700 full-time jobs and 6,200 part-time jobs, a net change of 15,900 jobs. The RBA’s closely watched inflation gauge, the annual average consumer price index (CPI), fell to 3.5% from 4.0% in the third quarter but remained well above the bank’s target of 2%-3%.
RBA Governor Michele Bullock said behind schedule last month that “given the tightness in the Australian labor market and our assessment that levels of demand continue to outpace supply in the broader economy, we expect it will take some time longer to achieve the inflation target. “
She further noted that core inflation in Australia is “too high” to consider interest rate cuts in the near future.
However, Australia’s economy grew at its slowest annual pace since the pandemic in the third quarter. OZ’s gross domestic product (GDP) increased by 0.3% in September, which is inconsistent with market forecasts of 0.4%. Surprisingly feeble growth data challenged the RBA’s forecast of 1.5% growth by the end of the year.
Weaker-than-expected GDP growth led markets to almost fully price in an interest rate cut of 96% next April (from 73% earlier) and see a 35 basis point (bp) easing in May (from 28bp earlier), in line with with interest rate Refinitive probability data.
Therefore, Governor Bullock’s policy statement and comments will be key in determining the RBA’s interest rate outlook in the novel year.
Announcing the RBA’s policy decision, TD Securities (TDS) analysts said: “Q3 GDP was disappointing, but this is unlikely to impact the RBA’s monetary policy outlook. Unless there is a sudden loss of jobs in a miniature time and the unemployment rate does not escalate to 4.5%, the absolute earliest reduction will be possible in May. We’ll call you by August.
How will the decision of the Reserve Bank of Australia affect AUD/USD?
RBA Governor Michele Bullock is widely expected to reiterate that “the board is not assuming or ruling anything out” and “believes there remains a risk of rising inflation.” The Bank’s wait-and-see approach is likely to provide the Australian dollar (AUD) with much-needed respite, lifting the AUD/USD pair from four-month lows below 0.6400.
If Bullock expresses concerns about an economic slowdown, while noting that the Council discussed interest rate cuts as an option at the meeting, the Australian is expected to face forceful selling pressure and return to levels not last seen since October 2023.
Dhwani Mehta, Chief Analyst for the Asia Session at FXStreet, highlights key technical data for AUD/USD trading in political announcements.
“Following the 50-day Simple Moving Average (SMA) and 200-day SMA death cross on December 4, AUD/USD remains at downside risk in the run-up to the showdown with the RBA. The 14-day relative strength index (RSI) remains well below the 50 level, currently near 40, reinforcing the bearish potential.
“The dovish surprise from the Bank could result in a new decline in AUD/USD towards the August 5 low of 0.6348, below which the 0.6300 level will become valid. The next downside target aligns with the October 2023 low of 0.6270. Alternatively, buyers need acceptance above the 21-day SMA at 0.6484 to initiate a significant pullback. Further up, the November 25 high of 0.6550 will be tested before we encounter the major intraday SMA near the 0.6620 area,” Dhwani added.
Australian DOLLAR PRICE this month
The table below shows the percentage change in the Australian Dollar (AUD) against the major listed currencies this month. The Australian dollar was the weakest against the Japanese yen.
| USD | EUR | GBP | JPY | BOOR | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | -0.57% | -0.65% | 1.03% | 1.10% | 0.77% | -0.37% | |
| EUR | 0.08% | -0.49% | -0.59% | 1.11% | 1.18% | 0.84% | -0.29% | |
| GBP | 0.57% | 0.49% | -0.12% | 1.60% | 1.68% | 1.34% | 0.20% | |
| JPY | 0.65% | 0.59% | 0.12% | 1.71% | 1.77% | 1.43% | 0.30% | |
| BOOR | -1.03% | -1.11% | -1.60% | -1.71% | 0.06% | -0.26% | -1.37% | |
| AUD | -1.10% | -1.18% | -1.68% | -1.77% | -0.06% | -0.33% | -1.45% | |
| NZD | -0.77% | -0.84% | -1.34% | -1.43% | 0.26% | 0.33% | -1.12% | |
| CHF | 0.37% | 0.29% | -0.20% | -0.30% | 1.37% | 1.45% | 1.12% |
The heat map shows the percentage changes of the major currencies relative to each other. The base currency is selected from the left column and the quote currency from the top row. For example, if you select Australian Dollar from the left column and move along the horizontal line to US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
