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Talking Points:

  • RBA leaves its cash rate unchanged at 2.00 percent as expected
  • Australian Dollar climbs more than 0.5 percent versus the USD
  • 2-year government bond yields rally signal RBA rate cut bets fade

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The Australian Dollar climbed more than 0.5 percent against its US counterpart after the Reserve Bank of Australia left its benchmark lending rate unchanged. 12 out of the 29 economists surveyed by Bloomberg predicted that the central bank would cut rates to 1.75 percent from 2.00 percent. The RBA has now left rates unchanged for 6 consecutive meetings.

Looking at the central bank’s monetary policy statement, the RBA judged that leaving the cash rate unchanged was appropriate at this meeting. Prospects for an improvement in economic conditions have firmed. While inflation is expected to be consistent with the target over the next two years, there was a slight revision to the downside. This translates to the outlook of inflation possibly offering the scope for further easing. Nevertheless, the board will continue to assess the outlook and judge whether or not the current stance of policy will be the most appropriate.

The markets are currently expecting the Reserve Bank of Australia to cut rates at least once over the next 12 months. While there were a few additions to today’s rhetoric, November’s monetary policy statement seemed relatively little changed compared to October’s. In the end, Australian 2-year government bond yields rallied more than 2 percent as the Aussie climbed. This likely signals that the markets are becoming less certain of a rate cut from the RBA in the near-term.

On Friday, the United States will release its report for October’s change in non-farm payrolls. Currency Strategist Ilya Spivak noted that an upbeat result is likely to increase the chances of a Fed rate hike in December. This will likely push the US dollar broadly higher against its major counterparts, including the Australian unit.

Australian Dollar Climbs as RBA Rate Cut Bets Fade

original source
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