The RBA decided to keep the cash rate steady at 4.35% on Tuesday and expressed a mix of uncertainties and positivity regarding inflation, indicating a reluctance to raise rates.
On Tuesday, December 5, 2023, the RBA opted to keep the cash rate unchanged at 4.35%, in line with economists' forecasts. Recent inflation and retail sales figures bolstered expectations for the RBA to halt its rate hike cycle. The market's attention shifted to the RBA Rate Statement following the policy decision.
RBA Rate Statement Indicates Policy Shift Away from Rate Hikes
The RBA Rate Statement attracted significant investor focus. Key points from the statement included:
Before the RBA interest rate decision and Rate Statement, the AUD/USD reached a peak of $0.66217 before dropping to a low of $0.65961.
However, in reaction to the decision and Rate Statement, the value of the Aussie dollar surged to a high of $0.66062 before declining to a low of $0.65713.
This morning, the Australian dollar was down 0.66% at $0.65758.
Later today, investor attention will turn to the service PMIs from Europe. A positive revision to the Eurozone services PMI could alleviate concerns about a prolonged economic downturn. Stronger-than-expected figures might also support the ECB's intention to maintain higher interest rates for an extended period, potentially impacting the economy and demand.
Nevertheless, the ISM Non-Manufacturing PMI and US JOLTs are likely to have a more significant impact on global markets.
An unexpected decline in the ISM Non-Manufacturing PMI and a larger-than-expected decrease in job openings could fuel expectations of a Fed rate cut in Q1 2024. Investors should closely consider the sub-components of these reports.
Divergent outcomes may alleviate expectations of a Fed rate cut.
Rises in ISM prices and ISM employment could indicate an upturn in demand-driven inflation. Service providers might pass on increased input costs (including higher wages) to consumers. Furthermore, a higher JOLTs quit rate would demonstrate confidence in the US economy, supporting wage growth, consumption, and demand-driven inflation.
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