RBA to Raise Interest Rate Today
AUD
The Aussie Dollar opens slightly down against majors despite a lack of economic data from the Asia-Pacific region in the past 24h. Asian equities closed largely in the red with the Nikkei outperforming its peers up +0.7%, while the ASX ended Monday’s session down -0.25%, weighed down by losses in the property sector. The main event today will be the RBA Board Meeting , where the central bank is all but certain to increase interest rates at its first meeting of the year. Most economists and traders see the RBA lifting its cash rate by 25 basis points to 3.35%, the highest level since 2012, while CBA & ANZ highlight a small probability of a bigger hike. Current forecasts indicate another percent’s worth of tightening this year, which is of-course subject to change depending on the incoming data. Attention will focus mainly on the Bank’s outlook, with Governor Philip Lowe expected to adopt a hawkish tone given recent broad-based heat within core inflation measures. Regardless, the RBA will weigh this sharp acceleration in core inflation with signs of weaker hiring & reduced household spending. Just like the average Aussie household, the Reserve Bank is in a tight spot.
USD
The AUDUSD opens down to 3-week lows of 0.6883 while another negative session on Wall St saw the NASDAQ trading -1.2%, the S&P 500 -0.7% & the Dow Jones -0.2%. After last week’s excitement, it’s a much quieter week ahead for US data. With activity data softening & inflation cooling, markets remain unconvinced about the Federal Reserve’s desire to raise interest rates ‘a couple more times’, as indicated by Fed Chair Powell recently. A recession appears to be the base case with markets expecting monetary policy easing in the latter half of the year, which has put recent downward pressure on the dollar. The highlight for this week would Powell’s appearance at the Economic Club of Washington. He’s expected to push back against market anticipations of near-term interest rate cuts in order to bolster the effectiveness of the Fed’s recent monetary policy tightening campaign.
EUR
The AUDEUR opens down at 0.6418 given EUR strength in the face of hawkish European Central Bank commentary. The ECB’s Vasle hit the wires indicating rate hikes are ‘far from over’ despite lower inflation, while Kazak then said a ‘significant’ data shock would be needed to stop another 50bp hike in March, which would bring the rate to 3.5%. The Eurozone is also set for a much quieter week with the most interesting risk events being various ECB commentary. We’ll also see Sweden’s central bank, the Riksbank, announcing policy later in the week. A 50bp hike is expected given inflation is running hot & wage negotiations are expected to boost wage growth & hence increase household disposable income.
GBP
The AUDGBP opens down at 0.5724 with the FTSE falling -0.8% off the back of hawkish commentary from the Bank of England. The BOE’s Mann said she sees firm upside risk to inflation, adding that she’s worried about the central bank becoming complacent & doing ‘too little on rates is a big risk’. Growth data is the main focus this week, with economists expecting the UK to have narrowly avoided a technical recession in Q4 of 2022. Thanks to lower energy prices & a warmer-than-expected Winter, the chances & likely severity of a UK recession have reduced. Tonight, Monetary Policy Committee member Pill is set to speak at a virtual event hosted by the BOE. No audience questions are expected.
NZD
AUDNZD opens down at 1.0914 after yesterday’s NZ Bank Holiday. ANZ monthly commodity price data will be posted today, with no expectations listed. Historically, the data hasn’t influence exchange rates. Given the lack of events & data, here’s a fun fact from, Kiwi Land: The New Zealand Dollar is the official currency of the Cook Islands, Niue, Tokelau, the Pitcairn Islands and… You guessed it… New Zealand.