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Sharp Decline of the Australian Dollar
The Australian dollar has taken a significant downturn this Tuesday. In Europe's active trading period, the AUD/USD currency pair is exchanging hands at 0.6507, indicating a decline of 0.80%. As of March 13, the Aussie has experienced a gruesome tumble, depreciating by about 1.7%.
RBA Abandons the Thrust Toward Increased Rates
The top-tier Reserve Bank of Australia has upheld the cash rate at a steady 4.35% for the fourth consecutive session at today's meeting. As wide-spread anticipations suggested no rate movements, attention focused on the bank's formal statement and Governor Bullock's subsequent media briefing.
The RBA's public note highlighted that the "Board is not eliminating any possibilities", a departure from their previous stance in February which implied that "an additional hike in interest rates is not to be dismissed". This minor discrepancy was enough to stir the markets, interpreting it as a hint that RBA may have withdrawn its inclination toward higher rates. The Australian dollar faced a severe downfall in the wake of the deliberation.
The bank's statement hinted towards "hopeful indicators that inflation is subsiding". But the RBA is not relieved yet, as inflation still hovers at uncomfortably high levels, and there are concerns over looming uncertainties in the domestic and international economic landscape. Household expenditure continues its decelerating trend, and the questionable state of the Chinese economy causes further alarm.
Inflation Remains the Key
The important takeaway? Persistent high inflation rates are keeping the RBA on its toes, and it is not planning on reducing rates hastily without witnessing a significant fall in inflation. In the press meeting, Governor Bullock attempted to minimise the perceived shift in the bank's tone, but market participants are seeing this modification as an important stride towards possibly lowering rates later in this year.
Meanwhile, across the Pacific, the U.S. is having an unusually quiet week with no top-level events on the financial calendar. Investors' attention is directed towards the Federal Reserve's rate announcement commencing on Wednesday. The interest rates are highly likely to hold steady between 5%-5.25%. Market participants will be dissecting the written statement, eager to discover hints about a time frame for the first rate reduction.
