- Australia’s benchmark interest rate will remain unchanged at 4.35% in November.
- Attention remains focused on comments from Reserve Bank of Australia Governor Michele Bullock and updated economic forecasts.
- The Australian Dollar could weaken if RBA Governor Bullock increases bets on a rate cut in December.
The Reserve Bank of Australia (RBA) is expected to keep monetary policy unchanged once again, extending the pause to the eighth consecutive meeting on Tuesday.
The RBA will keep the Official Cash Rate (OCR) at 4.35% after its November policy meeting. The decision will be announced at 03:30 GMT, followed by Governor Michele Bullock’s press conference at 04:30 GMT.
The Reserve Bank of Australia will maintain its stance again
With a decision not to change rates fully priced in this month, market attention will be on the RBA’s updated economic forecasts and Governor Michele Bullock’s press conference for fresh clues on the timing of the bank’s first rate cut. central since its post-covid hardening cycle.
Persistent core inflation and tense labor market conditions continue to support the case for a cautious stance by the Australian central bank.
The RBA’s preferred inflation gauge, the annual Trimmed Average Consumer Price Index (CPI), slowed to 3.5% from 4.0% in the third quarter, but remained above the Bank’s target of 2%-3%. . Service sector inflation also remained high.
Furthermore, the RBA’s annual report, published on October 25, reiterated that inflation will not be sustainable within the 2%-3% target for ‘another year or two’.
Meanwhile, the Australian economy added 64,100 jobs in September, exceeding the estimated net gain of 25,000 jobs. Of the new jobs created in September, 51,600 were full-time roles. The unemployment rate was unchanged at 4.1% in September, versus a forecast for an increase to 4.2%.
This data potentially rules out any policy changes this week and for the rest of this year. Markets are currently pricing the probability of a 25 basis point rate cut by Christmas at less than 20%, according to BBH analysts.
Previewing the RBA’s policy decision, analysts at TD Securities (TDS) said: “The RBA is unlikely to debate the case for a hike, but we don’t think the forecasts reveal the Bank is considering rate cuts.” coming months either. For now, we maintain May 2025 as the RBA’s first cut.”
How will the RBA rate decision impact the AUD/USD?
The Australian Dollar (AUD) is moving away from its lowest level in two months against the US Dollar (USD) ahead of the RBA announcements. Will the central bank provide additional impetus to the AUD/USD recovery?
The ongoing rally could continue if the RBA repeats that “the Board is not ruling anything out”, while acknowledging the upside risks to inflation. Therefore, the Bank’s cautious approach is expected to push AUD/USD back towards 0.6700.
On the contrary, the pair could see a sharp sell-off towards 0.6500 should RBA Governor Michele Bullock say in her post-meeting press conference that the Board discussed the option of cutting rates at the meeting.
Dhwani Mehta, Lead Asian Session Analyst at FXStreet, points out the key technicals for trading AUD/USD based on the policy outcome. “AUD/USD has floated, testing the 200-day SMA ahead of the RBA decision. The 14-day Relative Strength Index (RSI) rebounds sharply but remains below the 50 level, currently close to 41, keeping sellers hopeful.”
“Buyers need acceptance above the 200-day SMA at 0.6629 for a sustained recovery. The next upside barriers are seen at the 0.6700 threshold and the 50-day SMA at 0.6730. On the other hand, a fresh decline could test the two-month low of 0.6537, below which the 0.6500 level will offer some relief to buyers. Further south, the August 6 low of 0.6472 will come into play,” adds Dhwani.
Economic indicator
RBA interest rate decision
He Bank of Australia announces the interbank interest rate. This rate affects a range of interest rates set by commercial banks, building societies and other institutions for their own borrowers and depositors. It also affects exchange rates. If the Bank of Australia is firm on the economy’s inflation outlook and raises rates, this is bullish for the Australian dollar, while an outlook for reduced inflation pressures will be bearish.
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Central banks FAQs
Central banks have a key mandate to ensure price stability in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant fall in the prices of the same goods means deflation. It is the central bank’s job to keep demand in line by adjusting its interest rate. For the largest central banks, such as the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. At pre-communicated times, the central bank will issue a statement with its reference interest rate and give additional reasons why it maintains or modifies it (cuts or raises it). Local banks will adjust their savings and loan rates accordingly, which in turn will make it harder or easier for citizens to make a profit on their savings or for companies to borrow and invest in their businesses. When the central bank substantially raises interest rates, we speak of monetary tightening. When you reduce your reference rate, it is called monetary easing.
A central bank is usually politically independent. Members of the central bank’s policy council go through a series of panels and hearings before being appointed to a position on the policy council. Each member of that council usually has a certain conviction about how the central bank should control inflation and the subsequent monetary policy. Members who want a very loose monetary policy, with low rates and cheap loans, to substantially boost the economy, while settling for inflation slightly above 2%, are called “doves.” Members who prefer higher rates to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is at 2% or just below.
Typically, there is a chair who leads each meeting, has to create a consensus among the hawks or doves, and has the final say when votes need to be divided to avoid a 50-50 tie on whether to adjust current policy. The president will give speeches, which can often be followed live, communicating the current monetary stance and outlook. A central bank will try to push its monetary policy forward without causing wild swings in rates, stocks, or its currency. All central bank members will channel their stance toward markets ahead of a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, members are prohibited from speaking publicly. This is what is called the silent period.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
