A fourth 50bp RBA rate hike leaves AUDUSD neither shaken nor stirred

 

At its monthly meeting this afternoon, the Reserve Bank Board raised its official cash rate as expected by 50bp from 1.85% to 2.35%.

In a statement, little changed from August, the RBA again reiterated its commitment to see inflation return to the 2-3% range over time while attempting to keep the economy on an even keel. "The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments."

It continues to see inflation rising to around 7 ¾ % over 2022 before falling back to 4% over 2023 and expects the Australian economy to continue to grow "solidly" boosted by the terms of trade at record highs.

The RBA noted that the unemployment rate was expected to fall to new lows and included this notable addition on wages growth.

"Wages growth has picked up from the low rates of recent years, and there are some pockets where labour costs are increasing briskly. Given the tight labour market and the upstream price pressures, the Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.

The second notable change to the statement was on the impact of higher inflation and higher interest rates on household spending. An addition that hints at a more moderate pace of rate hikes in the future "with the full effects of higher interest rates yet to be felt in mortgage payments."

Supported by the final paragraph, where the RBA again reiterated that while the Board expects to increase interest rate in the months ahead, that policy is "not on a pre-set path" and "The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market."

Our base case remains for a 25bp rate hike in October, which would see the cash rate rise to 2.60%, into mildly restrictive territory before year-end. The RBA is then likely then pause to allow time to assess the full impact of the rate hiking cycle on inflation, growth, and labour market data.

What does it mean for the AUDUSD?

 

Following the release of the RBA statement, the reaction in the AUDUSD has been relatively muted, trading in a 20-pip range between .6810 and .6790.

 

 

Over the past few trading sessions, the AUDUSD has been well capped by resistance .6850/70. The AUDUSD needs to break above this resistance region to alleviate the downside risks after its 4.75% fall from the mid-August .7136 high.

 

 

Source Tradingview. The figures stated are as of September 6th, 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

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At its monthly meeting this afternoon, the Reserve Bank Board raised its official cash rate as expected by 50bp from 1.85% to 2.35%.

In a statement, little changed from August, the RBA again reiterated its commitment to see inflation return to the 2-3% range over time while attempting to keep the economy on an even keel. "The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments."

It continues to see inflation rising to around 7 ¾ % over 2022 before falling back to 4% over 2023 and expects the Australian economy to continue to grow "solidly" boosted by the terms of trade at record highs.

The RBA noted that the unemployment rate was expected to fall to new lows and included this notable addition on wages growth.

"Wages growth has picked up from the low rates of recent years, and there are some pockets where labour costs are increasing briskly. Given the tight labour market and the upstream price pressures, the Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.

The second notable change to the statement was on the impact of higher inflation and higher interest rates on household spending. An addition that hints at a more moderate pace of rate hikes in the future "with the full effects of higher interest rates yet to be felt in mortgage payments."

Supported by the final paragraph, where the RBA again reiterated that while the Board expects to increase interest rate in the months ahead, that policy is "not on a pre-set path" and "The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market."

Our base case remains for a 25bp rate hike in October, which would see the cash rate rise to 2.60%, into mildly restrictive territory before year-end. The RBA is then likely then pause to allow time to assess the full impact of the rate hiking cycle on inflation, growth, and labour market data.

What does it mean for the AUDUSD?

 

Following the release of the RBA statement, the reaction in the AUDUSD has been relatively muted, trading in a 20-pip range between .6810 and .6790.

 

 

Over the past few trading sessions, the AUDUSD has been well capped by resistance .6850/70. The AUDUSD needs to break above this resistance region to alleviate the downside risks after its 4.75% fall from the mid-August .7136 high.

 

 

Source Tradingview. The figures stated are as of September 6th, 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