Australian Dollar Rallies as Neutral RBA Decreases Rate Cut Bets
- Australian Dollar rallies versus the US Dollar after RBA rate decision
- Main lending rate 2.0% in March versus 2.0% expected and 2.0% prior
- Government bond yields rally as forward guidance remains little changed
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The Australian Dollar gained against its US namesake after the Reserve Bank of Australia held rates at 2.00 percent in March. The markets were not expecting an interest rate cut from the central bank. However, overnight index swaps were pricing in a 92 percent probability of at least 2 cuts over the next 12 months leading up to the event. This puts the forward guidance issued from the RBA on the spotlight as the markets look for clues that signal higher chances of easing in the future.
The Reserve Bank of Australia reiterated that low inflation may provide the scope for easier policy. The central bank said inflation will likely remain low over the next year or two. They will continue to judge whether improvements in job markets are holding and whether the recent financial turbulence is a sign of weaker global and domestic demand. On the whole, the rhetoric was mostly little changed from February’s meeting as the RBA remains data dependent.
After the interest rate decision, Australian front-end government bond yields rallied. This suggests that the markets are seeing a rate cut happen later rather than sooner. With that in mind, this puts key upcoming data releases in the spotlight. Fourth quarter Australian GDP is scheduled to be released on March 2nd.