Talking Points:
- The Australian Dollar advanced after the RBA kept the cash rate unchanged at 1.5 percent
- The currency rose with bond yields, hinting traders saw a hawkish lean in RBA rhetoric
- Inflation seen above 2 percent this year, Aussie gains may complicate economic adjustment
Check out our analysts 1Q 2017 Australian Dollar forecasts on the DailyFX Trading Guides page.
The Australian Dollar rose to a session high following the Reserve Bank of Australia’s decision to maintain its headline interest rate at 1.5 percent. The decision to hold rates was widely expected. In its policy statement, the RBA repeated the expectation that current policy will deliver sustainable growth a return to the inflation target over time, which traders seemed to interpret as relatively hawkish. Indeed, the currency rose alongside local bond yields.
In its assessment of domestic economic conditions, the central bank said that its price growth outlook is largely unchanged, noting that while inflation remains “quite low” the headline rate is seen surpassing 2 percent in 2017. On the labor market front, officials seemed broadly upbeat despite considerable regional variations. As for external demand, the Bank said higher commodity prices have been helpful but a stronger Aussie would complicate needed adjustments from the mining investment boom.
From here, additional details may be on offer in a speech from RBA Governor Philip Lowe tomorrow at 09:00 GMT as well as the central bank’s statement on monetary policy at 00:30 GMT on Friday.
Chart compiled using Trading View
