Upcoming AUD Cash Rate: Analysis and Forecast
As the Reserve Bank of Australia (RBA) prepares for its next policy meeting on Tuesday, November 5, 2024, market participants and investors are keenly watching for any signals that could impact the Australian economy and the value of the Australian Dollar (AUD). Here’s a comprehensive analysis of the current economic landscape and what can be expected from the RBA’s decision.
Current Interest Rate Environment
The RBA's cash rate currently stands at 4.35%, a level maintained since the last rate adjustment in late 2023. This rate reflects the central bank's cautious approach to managing inflation, which, although easing, remains above the RBA's target range of 2-3%.
Inflation Dynamics
The latest data from the Melbourne Institute’s Inflation Gauge shows a 0.3% month-over-month increase in October, up from 0.1% in the previous month. This rise, while modest, indicates that underlying inflation pressures are still present. The annual inflation rate from this gauge stands at 3.0%, slightly higher than the previous reading of 2.6%.
Despite these figures, analysts expect inflation to move closer to the RBA's target range by 2025. The pace at which services and goods inflation moderates will be crucial in determining future interest rate adjustments.
Economic Growth and Labour Market
Australia's economic growth has been sluggish, with real retail sales falling in recent quarters and per capita retail sales declining consecutively. However, the labour market remains relatively strong, with persistent strength in employment levels and wage growth. This balance between economic slowdown and labour market resilience complicates the RBA's decision-making process.
RBA Policy Stance
The RBA is widely expected to maintain the cash rate at 4.35% during the upcoming meeting. This decision aligns with the central bank's intent to carefully navigate between controlling inflation and avoiding any measures that could stifle economic growth. RBA Governor Michele Bullock has emphasized that the economy is performing "hotter" than anticipated, with demand exceeding supply, which necessitates continued monetary restraint.
Market Expectations and Forecasts
Analysts and market participants anticipate that the RBA will hold rates steady in the near term. The focus has shifted to the timing of potential rate cuts, with many expecting the first cuts to occur in late 2024 or early 2025. Westpac and ANZ economists predict that the RBA will begin cutting rates from February 2025, with the cash rate potentially falling to 3.6% by the end of 2025.
Global Economic Influences
The global economic landscape also plays a significant role in the RBA's decision-making. The upcoming US Federal Reserve policy decision, where a modest 25 basis point rate cut is expected, and the uncertainty surrounding the US presidential election, could influence global market sentiment and safe-haven flows. However, the Australian Dollar has shown resilience, appreciating following the release of the Melbourne Institute’s Inflation Gauge data.
Technical Analysis: AUD/USD
From a technical perspective, the AUD/USD pair is trading near the 0.6600 level, testing the nine-day Exponential Moving Average (EMA). The daily chart suggests a possible softening of the bearish bias, but the 14-day Relative Strength Index (RSI) remains below the 50 level, indicating that a shift in momentum to bullish would require a rise above this threshold. Key resistance levels include the nine-day EMA at 0.6602 and the 14-day EMA at 0.6625, while support is expected at the three-month low of 0.6536.
Conclusion
In conclusion, the RBA is likely to maintain the cash rate at 4.35% in its upcoming meeting, reflecting a cautious stance to manage inflation while avoiding measures that could hinder economic growth. Market expectations point towards rate cuts in the latter part of 2024 or early 2025, contingent on inflationary pressures easing and economic growth picking up.
Investors should closely monitor monthly inflation data, labour market conditions, and global economic trends, as these factors will significantly influence the RBA's future policy decisions. The Australian Dollar's performance will also be impacted by these dynamics, making it crucial for traders to stay informed and adapt their strategies accordingly.