RBA’s Nuanced Monetary Stance and the Global Impact of a Resurgent US Dollar

Yesterday, the Reserve Bank of Australia (RBA) maintained its interest rates, keeping them steady at 4.35%. This decision followed a 25-basis points hike in November. Despite recent remarks from RBA Governor Bullock and upward revisions to the RBA’s growth and inflation forecasts presented at the November policy meeting, the nuanced policy statement released by the RBA revealed a tone less hawkish than anticipated.

The RBA’s official statement, accessible at https://www.rba.gov.au/media-releases/2023/mr-23-35.html, delved into various economic indicators. It noted that the monthly Consumer Price Index (CPI) indicator for October suggested ongoing moderation in inflation, primarily driven by the goods sector. However, the absence of updated information on services inflation since the November policy meeting introduced an element of uncertainty.

The dovish sentiment extended to wage growth, with the RBA asserting that it is not expected to experience significant increases, aligning it with the inflation target. This cautious outlook prompted the RBA to reiterate that any future tightening of monetary policy would depend on evolving data and risk assessments.

This data-dependent approach in policy-setting signals a potential softening of the RBA’s bias toward further rate hikes. In contrast to other G10 central banks, the RBA is expected to be the least active in terms of rate cuts next year, with only 25 basis points of cuts priced in by the end of the year.

Simultaneously, the broader financial landscape witnessed the US dollar staging a modest rebound since late last month, pushing the dollar index above the 200-day moving average at around 103.60. This rebound followed a dip to 102.72 on November 29th. The US dollar’s strength was particularly noticeable against the Australian dollar, which experienced a decline of approximately -0.7%. The AUD/USD rate retreated towards its 200-day moving average at around 0.6580 after failing to sustain a break above the 0.6600-level.

The impetus behind the US dollar’s resurgence this week was attributed to the scaling back of expectations for Federal Reserve rate cuts. The implied yield on the December 2024 Fed fund futures contract increased by 8 basis points, marking a correction after a sharp move lower in yields last week when the implied yield fell by 48 basis points.

In summary, the RBA’s decision to maintain unchanged rates, coupled with a less hawkish policy statement, indicates a nuanced approach to future monetary policy actions. Meanwhile, the US dollar’s rebound is influenced by evolving expectations regarding Federal Reserve rate cuts, adding layers of complexity to the global economic landscape.

This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

  • Read this next

    Inside View, Uncategorized

    Why retail brokers are launching prime services

    Insights are provided by leading industry experts, including Elina Pedersen, Co-CEO & CRO of Your Bourse; Andrew Saks, Chief Product Officer at TraderEvolution; Natalia Zakharova, Head of Business Development at FXOpen; and Jay Mawji, CEO of Infinox.

    Institutional FX

    Cboe to launch MSCI-based options and volatility indices

    “We are excited to expand our Cboe-MSCI toolkit with additional index options and volatility indices – an enhancement that will not only broaden our customers’ product choice, but also enrich the ways they interact with and analyze the global markets.”

    Fintech

    Traxys taps Quantifi for risk management in commodities trading

    “We wanted to take a more sophisticated approach to risk management and have a consolidated view of risk exposures across our global operating model. Quantifi was our preferred choice as it has a track record of success in the commodities markets.”

    Digital Assets

    Startale Labs Secures Funding for Web3 Expansion

    Startale Labs, a leader in Japan’s Web3 development, including Astar Network and Startale Web3 Cloud, has raised an additional $3.5m from UOB Venture Management and Samsung Next. This seed extension round boosts their total seed funding to $7m, following a $3.5m investment from Sony Network Communications in June 2023.

    Retail FX

    XS.com acquires South African broker Ubutyebi Financial Services

    XS.com, the multi-regulated financial services provider, has made a strategic move to expand its presence in Africa by acquiring Ubutyebi Financial Services, a licensed Financial Service Provider (FSP) in South Africa regulated by the Financial Sector Conduct Authority (FSCA).

    Digital Assets

    Hong Kong advances legislation on stablecoins and crypto trading

    Hong Kong is moving forward with legislation to regulate stablecoins and crypto over-the-counter (OTC) trading in the latest effort to develop a legal framework to service the city’s digital-asset industry.

    Digital Assets

    Do Kwon to be extradited to US as South Korea request overturned

    Terraform Labs co-founder Do Kwon is set to be extradited to the United States to face fraud charges related to massive losses suffered by U.S. investors due to its algorithmic stablecoin collapse.

    Retail FX

    Prop firm Instant Funding pauses US accounts, citing ThinkMarkets ban

    Proprietary trading firm Instant Funding has become the latest retail platform to halt onboarding new US clients, citing a recent decision by their partner broker, ThinkMarkets.

    Retail FX

    Funded Trader and Alpha Capital switch to cTrader, Lark Funding to DXTrade

    Proprietary trading firms Lark Funding and Alpha Capital have both announced changes to their operations that mainly affect their business with US clients.

    <