Skip to content

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Australian dollar boosted by RBA hinting at hikes

The RBA left the official cash rate at 0.10% as expected; the statement removed the word 'patient' as evidence builds and a lift-off for rates in May could be brewing.

Source: Bloomberg

The Australian dollar rallied after the RBA left rates unchanged at 0.10% at their monetary policy meeting today. It was the hawkish tone that lifted the currency. In particular, the reference to being ‘patient’ in regards tightening was dropped.

No mention was made of disposing of assets accumulated during the pandemic and the market anticipates that the central bank will let these debt instruments mature in time.

An important phrase included in the statement said, ‘Over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs.’

Successive Australian governments have failed to provide funding to the Australian Bureau of Statistics (ABS) to enable them to provide monthly CPI.

Instead, Australia and New Zealand are the only two countries in the G-20 that release quarterly CPI. This is despite the Australian government mandating an inflation targeting regime to the RBA.

Today’s decision aside, the asymmetric bias within the monetary policy framework is alive and well. The bias stems from the belief that it is easier to deal with high inflation than it is to re-stoke economic growth if the flames of expansion are extinguished.

Hence, monetary policy is kept looser for longer than would otherwise be the case if there was a symmetric approach between growth and inflation.

While there might be some merit in this thinking, the logic only holds to a point. The breaking point is when inflation expectations become embedded.

The US Federal Reserve is further down this problematic path than the RBA, but the clock is ticking louder for Australian rates.

Many Australian employees have recently had their salaries increase by 3.5% as their awards are tied to headline CPI, not any other measure. Last week, the federal budget delivered household balance sheets a little kick along, although mostly temporary.

With unemployment at 4% and CPI data arriving April 27th, there are strong indications that overheating price pressures may trigger the RBA to hike in May.

Next week will see the Westpac consumer confidence gauge and jobs data released

AUD/USD dollar daily chart Source: TradingView

Follow Daniel McCarthy on Twitter at @DanMcCarthyFX

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. This information Advice given in this article is general in nature and is not intended to influence any person’s decisions about investing or financial products.

The material on this page does not contain a record of IG’s trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Start trading forex today

Trade the largest and most volatile financial market in the world.

  • Spreads start at just 0.6 points on EUR/USD
  • Analyse market movements with our essential selection of charts
  • Speculate from a range of platforms, including on mobile

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.