I’m a central banker, get me out of here
Ant and Dec were not present at the RBA decision overnight. However, based upon the reception of the decision, Governor Michele Bullock might rightly feel she was in one of the duo’s trials. Markets offered a frosty reception to the Reserve Bank of Australia’s latest interest rate decision overnight. Investors sold the Aussie Dollar and drove yields lower on benchmark debt instruments. The governor cited a weaker labour market and signs of faltering inflation as reasons not to deliver a final hike in 2023. Whilst the decision had been priced in and was delivered largely as expected, the decision to hold rates at 4.35% has pushed AUD lower across the board. However, the ramifications of the decision overnight could spread wider than just Australia. Wider even than neighbouring or integrated economies including New Zealand and China.
The RBA decision could have come at a convenient time and appropriate shape to stem losses within the US Dollar. The greenback has been undermined by two factors. Firstly, following a sharp spike in medium term yields, momentum more recently in rates is increasingly one way: downward. Secondly, the once impossible thought of a soft landing from recent economic events has somehow become mainstay. The RBA decision overnight provides a remedial comparison to both of those beliefs.
Firstly, whilst the decision to hold implies nothing for the path of US rates in and of itself, it does highlight the positive differential that US paper holds over many other G10 alternatives. This could drive demand for the Dollar as investors seek greater returns. Secondly, citing a softening labour market and wider economic conditions follows the theme of yet another systemically significant economy drifting further away from a soft landing. It shouldn’t be much of a surprise therefore that as the AUD slipped below its 200-day living average, trade weighted USD kicked slightly above its own.
Discussion and Analysis by Charles Porter
Not another headline Markets have either grown complacent or are reading beyond Trump’s headline statements. Over the past week markets have been presented with the challenge of fresh tariffs on China with retaliatory tariffs on the US also due to come into force in just under a week. In addition to that they have the […]
German Election With just 18 days to go to the German election, tensions are building. The centre right CDU whose leader Friedrich Merz is likely to be the next Chancellor is under fire for proposing a tougher immigration policy. That says his critics is similar to the far right AFD and verboten given the antipathy […]
Time to get a Thesaurus Removing tariffs just as quickly as President Trump thought to impose them is surely removing any elegance associated with Trump’s ‘favourite word in the dictionary’. On second thoughts, there likely never was any. In the two weeks that have passed since the President’s inauguration the tariff story goes something like […]