RBA Leaves Cash Rate on Hold and Maintains Guidance; Remains Vig
Updated
As widely expected by markets and economists, the Reserve Bank of Australia (RBA) held the Official Cash Rate (OCR) at 4.35% (12-year high), marking the fifth consecutive meeting on hold. The central bank has also left the door ajar for a rate increase should price pressures continue to rise.
Rate Statement Unchanged
The accompanying rate statement largely maintained guidance, reiterating: ‘Inflation is easing but has been doing so more slowly than previously expected, and it remains high’; the Board also repeated that it remains resolute in bringing inflation back to its target range.
The Board added: ‘It will be some time before inflation is sustainably in the target range. While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation’.
Additionally, the rate statement reaffirmed: ‘The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain, and the Board is not ruling anything in or out’.
Finally, the RBA reinserted the line ‘do whatever it takes’ for the first time since February, highlighting that the Board are vigilant and aware of the upside risks inflation poses.
Economic Picture
As communicated in the primer to the event, the economic landscape offers mixed signals. Inflationary pressures have been elevated this year – the monthly CPI indicator rose by +3.6% in the twelve months to April from +3.5% in March – though we have economic activity slowing to a snail pace in Q1 this year (+0.1%). The labour market also remains tight: we saw an increase in total employment for May (circa +40,000), and unemployment fell to 4.0% from 4.1%.
Press Conference
RBA Governor Michelle Bullock took to the stage an hour following the rate announcement and emphasised that the central bank is not ‘ruling anything in or out’ and needs data to go their way to bring inflation back to the target range.
Bullock added that the Board’s objective continues to be on bringing inflation back to target. She communicated that the central bank remains vigilant to inflationary pressures and is conscious that high rates are ‘hurting’ individuals and some sectors of the economy.
The RBA head noted that the Board did not discuss a case for a rate cut at this meeting and that she did not have a timeline for a cut. However, she commented that the Board discussed the possibility of raising the OCR, and this is likely what’s behind the bid in AUD. However, her comment is not anything new, as the same point was reiterated in the minutes of the May meeting.
The initial market reaction following the rate announcement observed a short-lived spike lower to just north of $0.66 on the AUD/USD. Subsequently, AUD/USD bulls went on the offensive and took control of the session, fuelled further by the above-noted comments at the press conference. From the H1 chart, AUD/USD elbowed north of resistance at $0.6621 (now possible support), though swiftly touched gloves with resistance at $0.6626, a level set just south of trendline support-turned-resistance line taken from the low of $0.6575.
Rate Statement Unchanged
The accompanying rate statement largely maintained guidance, reiterating: ‘Inflation is easing but has been doing so more slowly than previously expected, and it remains high’; the Board also repeated that it remains resolute in bringing inflation back to its target range.
The Board added: ‘It will be some time before inflation is sustainably in the target range. While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation’.
Additionally, the rate statement reaffirmed: ‘The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain, and the Board is not ruling anything in or out’.
Finally, the RBA reinserted the line ‘do whatever it takes’ for the first time since February, highlighting that the Board are vigilant and aware of the upside risks inflation poses.
Economic Picture
As communicated in the primer to the event, the economic landscape offers mixed signals. Inflationary pressures have been elevated this year – the monthly CPI indicator rose by +3.6% in the twelve months to April from +3.5% in March – though we have economic activity slowing to a snail pace in Q1 this year (+0.1%). The labour market also remains tight: we saw an increase in total employment for May (circa +40,000), and unemployment fell to 4.0% from 4.1%.
Press Conference
RBA Governor Michelle Bullock took to the stage an hour following the rate announcement and emphasised that the central bank is not ‘ruling anything in or out’ and needs data to go their way to bring inflation back to the target range.
Bullock added that the Board’s objective continues to be on bringing inflation back to target. She communicated that the central bank remains vigilant to inflationary pressures and is conscious that high rates are ‘hurting’ individuals and some sectors of the economy.
The RBA head noted that the Board did not discuss a case for a rate cut at this meeting and that she did not have a timeline for a cut. However, she commented that the Board discussed the possibility of raising the OCR, and this is likely what’s behind the bid in AUD. However, her comment is not anything new, as the same point was reiterated in the minutes of the May meeting.
The initial market reaction following the rate announcement observed a short-lived spike lower to just north of $0.66 on the AUD/USD. Subsequently, AUD/USD bulls went on the offensive and took control of the session, fuelled further by the above-noted comments at the press conference. From the H1 chart, AUD/USD elbowed north of resistance at $0.6621 (now possible support), though swiftly touched gloves with resistance at $0.6626, a level set just south of trendline support-turned-resistance line taken from the low of $0.6575.
Note
A solid move lower from short-term resistance!
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