Thu, Aug 18, 2022 @ 16:34 GMT
HomeContributorsFundamental AnalysisRBA to End QE and Bring Forward Rate Hike Guidance: AUDUSD

RBA to End QE and Bring Forward Rate Hike Guidance: AUDUSD

The RBA meets next Tuesday, February 1st, for the first time in 2022. Employment and inflation data have beaten expectations by sufficient margin to encourage the bank to take its next shift to further policy normalization, earlier than anticipated at its last meeting in December.

The recovery in the labour market has continued to impress post the re-opening in October. The Australian economy added +64.8k jobs in December on top of the 366k jobs created in November. The seasonally adjusted unemployment rate fell to 4.2% from 4.6%, its lowest level since pre the Global Financial Crisis, August 2008.

Headline consumer prices for the December quarter rose by 1.3%, higher than the 1% expected by economists taking the annual inflation rate to 3.5%. The trimmed mean or core inflation (the RBA’s preferred inflation gauge) rose by 1%, taking the annual rate to 2.6%. Notably, the annual rate of core inflation is now above the mid-point of the RBA’s target 2-3% band for the first time since mid-2014.

The RBA has repeatedly stressed that wages growth around 3% will be necessary to sustain inflation within that band. Wage inflation is currently at ~2.2%yoy, which will see a lot of focus on the next wage inflation print on February 23rd.

What will the RBA do next week?

The RBA will likely end its $350 billion quantitative easing (QE) bond buying program next week and bring forward its rate hike guidance towards the first half of 2023. This is in contrast to the interest rate market currently pricing rates lift off in April and a further three rate hikes by December 2022.

What does it mean for the AUDUSD?

The AUDUSD has sagged under the weight of the stronger U.S. dollar post the hawkish FOMC meeting yesterday, and is eyeing strong horizontal support near .7000c.

Should the AUDUSD see a sustained break below .7000/.6990c, it would then see the AUDUSD move initially towards the June 2016 low at .6826, before .6675.

Forex.com
Forex.com
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Featured Analysis

Learn Forex Trading