This morning, the Reserve Bank of Australia (RBA) kept the key interest rate unchanged at 4.35 per cent at its final policy meeting of the year. However, the tone around this decision was noticeably more dovish, leading to a significant weakening of the AUD in the initial reaction, notes Commerzbank currency analyst Volkmar Baur.
Economic development weaker than expected
“Two points stood out for currency traders. Firstly, the RBA had to admit that economic growth in the third quarter was weaker than expected. Economic development is therefore weaker than expected, which which advocates a more lax monetary policy. In addition, and this point is even more important, the wording around inflation was changed.”
“The RBA is now said to be more confident that inflation will move sustainably towards the center of the RBA’s target range (2-3%). In November, the RBA was still stating that this is exactly what needed to happen to begin easing monetary policy. There is still plenty of time before their next meeting in mid-February. Meanwhile, two labor market reports and fourth-quarter inflation figures will be released.”
“The market will therefore be watching this data very closely in the coming weeks to assess what to expect in February. We expect the RBA to cut interest rates in February. The market’s assessment of the likelihood of such a move is currently a slightly higher than yesterday, around 64% this morning. A full incorporation in the coming weeks would weigh even more on the AUD.”
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.
