AUD/USD recoils after relatively dovish RBA decision

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The AUD/USD price tilted lower on Tuesday after the Reserve Bank of Australia (RBA) delivered its November interest rate decision. The pair fell to 0.7495, which was slightly lower than this week’s high of 0.7535.

RBA decision

The RBA concluded its monthly meeting on Tuesday. The bank decided to leave interest rates unchanged at 0.10% as most analysts were expecting. At the same time, the bank decided to continue with its quantitative easing policy at the pace of A$4 billion per week. It expects to maintain these purchases until mid-February next year.

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The main key change in the monetary policy statement was that the bank was abandoning its yield curve control program. The statement said that the bank will discontinue its target of the April 2024 government bond yield at about 10 basis points.

Another key change was that the RBA announced that it will not raise interest rates in the coming months. It expects to implement the first interest rate hike at the end of 2023. In its previous meetings, the bank was signalling that rates will rise in 2024.

Still, analysts believe that the RBA will implement the first hike in 2023. Besides, the labour market is tightening and the rate of inflation remains elevated. 

The bank said that the headline consumer inflation was at about 3% due to rising energy prices. It expects that the headline rate will keep rising in the coming months. It expects that the headline CPI will rise to 2.25% in 2021 and then 2.5 in 2022. On housing prices, the bank said:

“Housing prices are continuing to rise in most markets and housing credit growth has picked up due to stronger demand for credit by both owner-occupiers and investors. It is important that lending standards are maintained at a time of historically low-interest rates.”

AUD/USD forecast

The next key events that will affect the AUD/USD pair will be the latest interest rate decision by the Federal Reserve. The bank is expected to sound a bit hawkish because of the ongoing trends in the country’s economy. While Q3 GDP growth was lower than expected, the unemployment rate has fallen and inflation has risen. 

And on Friday, the pair will react to the latest US non-farm payroll data. The numbers are expected to show that the economy added more than 450k jobs in October while the unemployment rate fell to 4.7%. Therefore, the AUD/USD will likely keep falling as the divergence between the Fed and RBA continues.

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