RBA Keeps Cash Rate on Hold at 4.35%
In its final interest rate decision of the year, the Reserve Bank of Australia (RBA) announced that it would keep the Cash Rate on hold at 4.35% for a ninth consecutive meeting; no surprises there and no relief for Aussies ahead of the Christmas break as rates remain at 13-year highs. While many global central banks have kicked off their easing policy, the RBA will likely remain on hold until the latter part of the first half of next year.
The RBA Board underlined that inflationary pressures remain too high. This is a key issue for the RBA; it wants to be sure that it has done enough to slow the economy to bring inflation back to the 2-3% target, and when ‘confident’ enough, the central bank will begin to ease policy. Importantly, according to the RBA’s rate statement, their confidence is clearly increasing, which is something investors have been looking for the central bank to signal.
Inflation and Jobs Data Eyed
According to October’s release, the monthly CPI (Consumer Price Index) indicator is just north of 2.0% at 2.1%, comfortably within the RBA’s 2-3% inflation target. While the monthly CPI indicator can be market-moving, it can also be volatile and not provide the whole picture. Consequently, quarterly figures remain key, with the next release in January for Q4 24. Inflation remained somewhat elevated for the Australian economy at 2.8% in Q3 24, just within the upper range of the RBA’s inflation band. Still, the Trimmed Mean CPI inflation data remains outside this range at 3.5% (according to Q3 24 data, down from 4.0% in Q2 24), with Services inflation also remaining elevated at 4.6%, up from 4.5%. The RBA Board will look for more progress on inflation in the quarterly measures.
The labour market remains strong, which is likely one of the reasons why the RBA is cautious about cutting interest rates. The timing of any rate cuts by the central bank will largely depend on how the job market evolves in 2025. We will have Australian jobs data for November released on Thursday at 12:30 am GMT. The unemployment rate is expected to increase slightly to 4.2% from 4.1% in October. Despite the RBA forecasting that the unemployment rate would rise to 4.5% by the end of this year, it has remained at 4.0% for most of the year. Employment is expected to gain 25,500 new jobs, following a gain of nearly 16,000 in the previous period. Personally, I believe that if the RBA identifies weaknesses in the job market before the next rate decision, it could tilt the scale in favour of the central bank deciding to cut rates.
Regarding GDP growth figures (Gross Domestic Product), economic activity has fallen short of market expectations for several quarters and has been limping since early 2023. The latest Q3 24 GDP figures released last week showed economic activity grew by 0.3%, a touch higher than 0.2% in Q2 24.
RBA Rate Cut in February?
Following the interest rate decision, RBA Governor Michelle Bullock took to the microphone and underlined that inflation remains too high. However, she noted that the Board is gaining confidence that inflation is slowing but cautioned that ‘risks remain’, which echoes a slightly dovish stance. Further to this, the change in the language of the rate statement regarding removing the word ‘vigilant’ and the phrase ‘not ruling anything in or out’ was deliberate, according to the RBA Governor, emphasising a dovish tone to today’s meeting.
The next policy meeting is on 18 February, and investors are currently pricing in about a 50/50 chance (14 basis points [bps] of cuts priced in) on whether we’ll see a 25 bp cut or another no-change decision. As of writing, the April meeting is fully priced for a 25 bp reduction (30 bps priced in). So, markets expect the RBA to cut in the first half of next year.
With a full December quarter’s worth of inflation figures and another employment report to be published in early January 2025, these will be key data points going forward – both for the RBA in determining whether to cut rates or not, as well as from a traders’ perspective in terms of trade planning for either trading into or out of the events.
AUD/USD Venturing South of Pattern Support
Month to date, the AUD/USD (Australian dollar versus the US dollar) is down nearly 2.0% and recently ventured south of major pattern support (a symmetrical triangle extended from US$0.8007 and US$0.5506), indicating further bearish sentiment. However, while this will likely prompt follow-through selling, some may hold back based on the Relative Strength Index yet to cross below trendline support, taken from the low of 29.46.
Written by FP Markets Market Analyst Aaron Hill
The RBA Board underlined that inflationary pressures remain too high. This is a key issue for the RBA; it wants to be sure that it has done enough to slow the economy to bring inflation back to the 2-3% target, and when ‘confident’ enough, the central bank will begin to ease policy. Importantly, according to the RBA’s rate statement, their confidence is clearly increasing, which is something investors have been looking for the central bank to signal.
Inflation and Jobs Data Eyed
According to October’s release, the monthly CPI (Consumer Price Index) indicator is just north of 2.0% at 2.1%, comfortably within the RBA’s 2-3% inflation target. While the monthly CPI indicator can be market-moving, it can also be volatile and not provide the whole picture. Consequently, quarterly figures remain key, with the next release in January for Q4 24. Inflation remained somewhat elevated for the Australian economy at 2.8% in Q3 24, just within the upper range of the RBA’s inflation band. Still, the Trimmed Mean CPI inflation data remains outside this range at 3.5% (according to Q3 24 data, down from 4.0% in Q2 24), with Services inflation also remaining elevated at 4.6%, up from 4.5%. The RBA Board will look for more progress on inflation in the quarterly measures.
The labour market remains strong, which is likely one of the reasons why the RBA is cautious about cutting interest rates. The timing of any rate cuts by the central bank will largely depend on how the job market evolves in 2025. We will have Australian jobs data for November released on Thursday at 12:30 am GMT. The unemployment rate is expected to increase slightly to 4.2% from 4.1% in October. Despite the RBA forecasting that the unemployment rate would rise to 4.5% by the end of this year, it has remained at 4.0% for most of the year. Employment is expected to gain 25,500 new jobs, following a gain of nearly 16,000 in the previous period. Personally, I believe that if the RBA identifies weaknesses in the job market before the next rate decision, it could tilt the scale in favour of the central bank deciding to cut rates.
Regarding GDP growth figures (Gross Domestic Product), economic activity has fallen short of market expectations for several quarters and has been limping since early 2023. The latest Q3 24 GDP figures released last week showed economic activity grew by 0.3%, a touch higher than 0.2% in Q2 24.
RBA Rate Cut in February?
Following the interest rate decision, RBA Governor Michelle Bullock took to the microphone and underlined that inflation remains too high. However, she noted that the Board is gaining confidence that inflation is slowing but cautioned that ‘risks remain’, which echoes a slightly dovish stance. Further to this, the change in the language of the rate statement regarding removing the word ‘vigilant’ and the phrase ‘not ruling anything in or out’ was deliberate, according to the RBA Governor, emphasising a dovish tone to today’s meeting.
The next policy meeting is on 18 February, and investors are currently pricing in about a 50/50 chance (14 basis points [bps] of cuts priced in) on whether we’ll see a 25 bp cut or another no-change decision. As of writing, the April meeting is fully priced for a 25 bp reduction (30 bps priced in). So, markets expect the RBA to cut in the first half of next year.
With a full December quarter’s worth of inflation figures and another employment report to be published in early January 2025, these will be key data points going forward – both for the RBA in determining whether to cut rates or not, as well as from a traders’ perspective in terms of trade planning for either trading into or out of the events.
AUD/USD Venturing South of Pattern Support
Month to date, the AUD/USD (Australian dollar versus the US dollar) is down nearly 2.0% and recently ventured south of major pattern support (a symmetrical triangle extended from US$0.8007 and US$0.5506), indicating further bearish sentiment. However, while this will likely prompt follow-through selling, some may hold back based on the Relative Strength Index yet to cross below trendline support, taken from the low of 29.46.
Written by FP Markets Market Analyst Aaron Hill
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