RBA Interest Rate Decision - The Fight Against Rising Inflation Continues

Summary:

• RBA monetary policy decision.
• RBA meets market expectations.

The RBA Hikes Interest Rates By 50bps - Meeting market expectations

The Reserve Bank of Australia (RBA), which raised interest rates by another 50 basis points, together with indications that the central bank is reaching the conclusion of its tightening cycle, left the Australian Dollar floundering. By raising rates by 50 basis points, the RBA satisfied market expectations and promised additional rate increases in its outlook.

However, the RBA acknowledged "higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments". This is a sign from the Bank that it thinks the time has come to scale back on raising interest rates because the full impact of recent moves has not yet been felt.

At its meeting today, the Board decided to increase the cash rate target by 50 basis points to 2.35 per cent. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 2.25 per cent - https://t.co/7SpNu8FKJQ

— RBA (@RBAInfo) September 6, 2022

RBA Hikes Interest Rates

The Reserve Bank of Australia's upcoming interest rate hike may provide some short-term comfort for the Australian dollar. Investors expect the RBA to raise interest rates by another 50 basis points, but the Australian dollar may fluctuate depending on the bank's future direction.

The RBA’s decision to raise interest rates by 50 basis points in its battle against growing inflation; according to the most recent data, prices are rising at a 6.1% annual rate. However, a 50bp is "in the price" of Australian currency rates, thus market volatility will most likely depend on the direction the RBA directs investors to take in terms of future policy decisions. Australia's economy is weakening; according to August PMI data, a fall in services sector activity caused the composite index to enter contractionary territory.

"Beyond this month the outlook looks far bumpier. The RBA could therefore be driven to signal a smaller pace of hikes from next month, as a weaker economic backdrop accelerates, delivering what we might describe as a dovish hike," says a daily currency update from Moneycorp. "Given that 50bps is all but priced into markets, the Aussie is likely to be driven on the day by the commentary from the RBA, with the Aussie likely being boosted most by bullish calls, and hindered if the RBA adopts a dovish tone," adds the note.

The Australian Dollar is the third-best performing major currency in 2022.

Thanks to Australia's substantial trade surplus, which implies that its currency is supported by robust export revenues, the Australian Dollar is the third-best performing major currency in 2022.

Sources: poundsterlinglive.com, investing.com