RBA to end QE and bring forward rate hike guidance: AUDUSD
Tony Sycamore January 27, 2022 11:55 PM
The RBA meets next Tuesday, February 1st, for the first time in 2022. Employment and inflation data have beaten expectations by sufficient margin to encourage the bank to take its next shift to further policy normalization, earlier than anticipated at its last meeting in December.
The recovery in the labour market has continued to impress post the re-opening in October. The Australian economy added +64.8k jobs in December on top of the 366k jobs created in November. The seasonally adjusted unemployment rate fell to 4.2% from 4.6%, its lowest level since pre the Global Financial Crisis, August 2008.
Headline consumer prices for the December quarter rose by 1.3%, higher than the 1% expected by economists taking the annual inflation rate to 3.5%. The trimmed mean or core inflation (the RBA’s preferred inflation gauge) rose by 1%, taking the annual rate to 2.6%. Notably, the annual rate of core inflation is now above the mid-point of the RBA’s target 2-3% band for the first time since mid-2014.
The RBA has repeatedly stressed that wages growth around 3% will be necessary to sustain inflation within that band. Wage inflation is currently at ~2.2%yoy, which will see a lot of focus on the next wage inflation print on February 23rd.
What will the RBA do next week?
The RBA will likely end its $350 billion quantitative easing (QE) bond buying program next week and bring forward its rate hike guidance towards the first half of 2023. This is in contrast to the interest rate market currently pricing rates lift off in April and a further three rate hikes by December 2022.
What does it mean for the AUDUSD?
The AUDUSD has sagged under the weight of the stronger U.S. dollar post the hawkish FOMC meeting yesterday, and is eyeing strong horizontal support near .7000c.
Should the AUDUSD see a sustained break below .7000/.6990c, it would then see the AUDUSD move initially towards the June 2016 low at .6826, before .6675.
Source Tradingview. The figures stated areas of January 28th, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.