Australian Dollar, AUD/USD, RBA, US Dollar, Fed, Yields, RBNZ – Talking Points
The Australian Dollar went down a bit after the Reserve Bank of Australia decided to keep interest rates steady for the first time since May 2022.
The RBA is keeping its options open and hasn’t completely ruled out the possibility of future interest rate hikes. In their statement on monetary policy, they did mention that they may need to tighten things up a bit more to get inflation back on track.
The interest rate markets seem to be indicating that there won’t be any more rate hikes and that there’s a good chance of a 25 basis point cut by the end of the year.
The Aussie today; Yesterday, there was a really big rally for it! But, things got a little crazy in the markets because crude oil prices surged after OPEC+ cut its crude oil production target by 1.1 million barrels per day. This made existing supply issues even tighter.
The Treasury yields dropped and as a result, the US Dollar followed suit. It’s good news for AUD/USD though, as it benefitted the most. The yield spread between Treasuries and Australian Commonwealth Government bonds (ACGB) moved closer to favoring AUD, which could be one of the reasons for the rally.
The RBA has increased the cash rate by 350 basis points starting from May 2022. In case you were curious, back in October 2021, the Australian Prudential Regulation Authority (APRA) made a statement about it.
The new monthly gauge only includes about two-thirds of the items that are counted in the quarterly figure.
The RBA has mentioned before that they are not as strict due to the slight decrease in the monthly CPI number. However, if there’s another 0.6% decrease, it could cause some trouble for the central bank and lead to a drastic drop in the monthly read.
Heads up tomorrow the Reserve Bank of New Zealand (RBNZ) is expected to increase its official cash rate (OCR) by 25 basis points to 5.0%. By the way, know that today the Kiwi reached a 7-week high above 63 cents against the US Dollar.
The RBA’s full monetary policy statement can be read here.
APRA has asked lenders to make sure they check if new borrowers can handle their loan repayments at an interest rate that’s at least 3.0 percentage points higher than the loan product rate.
The hurdle used to be 2.5%. You might have heard about this thing called the ‘mortgage cliff’ where people have to refinance their debt at current levels. The thing is, some of these debts could be a bit too high for APRA’s liking.
It seems like the RBA is taking its time to adjust monetary policy, even though CPI is higher than its goal of 2-3% throughout the business cycle.
Quarterly CPI is coming out later this month. It’s pretty exciting because this will only be the second time we can compare it to the new monthly CPI figure that the Australian Bureau of Statistics (ABS) introduced last October.