RBA Interest Rate Decision: Expectations and Implications for the Australian Economy and AUD

Upcoming AUD Cash Rate Decision: What to Expect and Its Implications

As of November 5, 2024, the financial community is eagerly awaiting the Reserve Bank of Australia (RBA)’s decision on the Official Cash Rate (OCR), a pivotal event that can significantly influence the Australian economy and the value of the Australian Dollar (AUD).

RBA's Expected Decision

Market consensus and recent economic indicators suggest that the RBA is likely to maintain the OCR at 4.35%, marking the eighth consecutive month without a change.

This decision is largely driven by the current economic landscape, where underlying inflation, although moderating, remains above the RBA's target range of 2-3%. The annual Trimmed Mean Consumer Price Index (CPI) has slowed to 3.5% from 4.0% in the third quarter, but service-sector inflation continues to be elevated due to strong domestic cost pressures and excess demand in the economy.

Economic Context

The Australian economy is experiencing a period of subdued demand growth and moderate employment growth. The RBA's stance on monetary policy is currently restrictive, aimed at establishing a more sustainable balance between demand and the economy's supply capacity. This approach is expected to continue until inflation returns to the target range, anticipated to be around 2025-2026.

Impact on the Australian Dollar (AUD)

The AUD has shown some resilience ahead of the RBA's decision, partly due to improved Purchasing Managers Index (PMI) data. Australia's Judo Bank Services and Composite PMIs rose to 51.0 and 50.2, respectively, in October, indicating a slight improvement in economic activity.

However, the AUD's performance is also influenced by external factors, such as the health of the Chinese economy, Australia's largest trading partner. Positive or negative surprises in Chinese growth data can directly impact the AUD's value.

Technical Analysis

From a technical perspective, the AUD/USD pair is currently trading near 0.6590, testing the nine-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) remains below 50, indicating a persistent bearish outlook. Immediate resistance levels are at the nine-day EMA (0.6596) and the 14-day EMA (0.6618), while support levels are around the three-month low at 0.6536 and the key psychological support at 0.6500.

For a sustained recovery, buyers need to push the AUD/USD above the 200-day Simple Moving Average (SMA) at 0.6629, with potential upside targets at 0.6700 and the 50-day SMA at 0.6730. Conversely, if the RBA hints at a potential rate cut, the pair could witness a sharp sell-off toward 0.6500.

Governor Michele Bullock's Press Conference

Following the interest rate decision, market attention will shift to Governor Michele Bullock’s press conference. Her comments and the RBA’s updated economic forecasts will be closely monitored for any hints on the timing of the first interest rate cut since the post-COVID tightening cycle. If the RBA indicates a possibility of a rate cut, it could lead to a sell-off in the AUD, while a cautious stance maintaining current rates could support the AUD's recovery.

Conclusion

The upcoming RBA decision on the OCR is a critical event that will shape the trajectory of the Australian economy and the AUD in the near term. With the cash rate expected to remain unchanged, the focus will be on the RBA's economic forecasts and Governor Bullock's comments. Traders and investors should be prepared for potential volatility in the AUD/USD pair based on these announcements, and any surprises in the RBA's stance could significantly impact market sentiment and trading strategies.

RBA Interest Rate Decision: What to Expect from the Upcoming Meeting on November 5, 2024.

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.