Australian dollar slips, bonds rally after RBA cuts hawks

Australian dollar slips, bonds rally after RBA cuts hawks
Australian dollar slips, bonds rally after RBA cuts hawks

The Australian dollar fell and bonds rallied on Tuesday after the country’s central bank held interest rates as expected and was less optimistic about the political outlook than many had bet.

The Aussie lost a quarter of a cent to $0.6603 after the Reserve Bank of Australia (RBA) concluded its May meeting by keeping interest rates at 4.35%, where they have been since a hike in November last year.

All but one of 25 analysts polled by Reuters had forecast a stable result, but there had been speculation that the central bank would reinstate an explicit tightening bias given that inflation had surprised by its high level in the first quarter.

Instead, the RBA board maintained the same wording as at its March meeting, saying it was not ruling anything out on rates and adding only that it would be vigilant against upside risks. of inflation.

Futures markets responded by lowering the odds of another rate hike to 16%, down from around 40% before the statement.

Australian 3-year bond futures rose 8 ticks to 96.060, after being as low as 95.840 at one point last week.

Yields on 10-year bonds fell 7 basis points to 4.32%, after hitting a 5-month high of 4.55%.

However, forecasts from the RBA’s economic unit released on Tuesday were more optimistic, estimating that rates would not be cut until mid-2025, nine months later than forecast in February.

“This suggests they will be very vigilant and responsive to inflationary surprises, and they also see the labor market tightening compared to their previous forecasts,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.

“It is clear that the bar is very high for raising interest rates further, given the continued weakness in consumer spending and overall activity,” he added. “But another upside surprise on inflation will test the RBA’s patience.

Markets believe that there is no chance of rate cuts this year and that there is only a slight prospect of easing by March 2025.

This contrasts with pricing from the US Federal Reserve, where futures imply an 80% chance of a rate cut by September and forecast 43 basis points of easing for this year.

The Kiwi dollar held steady at $0.6011, just shy of last week’s high of $0.6050. Major resistance lies at its April high of $0.6084. (Reporting by Wayne Cole; Writing by Jamie Freed)

-

-

PREV the State goes on the offensive to “retake complete control” of the territory
NEXT penalized by the high price of goods, the amount of new credits falls again