The Australian Dollar is trading lower against its U.S. counterpart after the Reserve Bank (RBA) kept its cash rate at a record low of 0.1 percent on Tuesday, an expected decision given policymakers recently said a first hike was possible later this year.
At 03:56 GMT, the AUD/USD is trading .7248, down 0.0017 or -0.23%. On Monday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $71.97, up $0.25 or +0.35%.
Wrapping up its March policy meeting, the RBA said the war in Ukraine was a major new source of uncertainty and had further raised prices for some commodities. All analysts surveyed by Reuters had expected a steady decision, Reuters wrote.
Pre-Monetary Policy Meeting Expectations
Ahead of today’s RBA policy decisions, a Reuters poll of economists showed Australia’s central bank would raise interest rates for the first time in over a decade in the third quarter, slightly earlier than thought a month ago. The economists see rates by year-end at 0.50%, up from 0.25% previously.
Nearly every other central bank among its peers will have hiked rates from record lows by the end of March. The Reserve Bank of New Zealand, for example, had already lifted them several times in the current cycle.
But the Reserve Bank of Australia (RBA) keeps waiting for signs of wage inflation before responding to broad inflationary pressures.
Underlying inflation in Australia, which surged at its fastest annual pace since 2014 in the December quarter, suggests that price growth was not as temporary and or as benign as had been predicted by the RBA.
In the latest February 18-24 Reuters poll, economists brought forward their rate hike expectations for a fourth straight month and expect the RBA to raise its key interest rate by 15 basis points to 0.25% in the July-September quarter.
Seven of 28 economists forecast rates would go up to 0.50% and two expected them to reach 0.75% in the third quarter. If realized, that would bring borrowing costs back to their pre-pandemic level.
More interest rate rises are on the way, with the benchmark rate expected to reach at least 0.50% by the end of this year according to 21 of 28 economists and 1.25% by the end of 2023, the poll showed.
Money market traders are betting on a rate rise to 0.25% as early as June, climbing to 1.50% by year-end. Among the major local banks, CBA is tipping a first rise in June, Westpac sees August, ANZ says September and NAB November.
RBA Policy Decision Wrap-Up
“The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve,” said RBA Governor Philip Lowe in a brief statement. “The war in Ukraine is a major new source of uncertainty.”