The RBA hiked by 25bp – but Governor Lowe slips in an inflation upgrade

Summary of RBA’s November statement:

The board decided to raise rates by 25bp to 2.85%
Inflation in Australia is too high – and forecast to peak at around 8 per cent later this year up from 7.75% previously)
CPI inflation to be around 4¾ per cent over 2023 (CPI was to be a ‘little above 4%’ in the October statement)
Medium-term inflation expectations remain well anchored, and it is important that this remains the case
Australian economy continues to grow solidly, but growth is expected to moderate (with GDP’s forecast moderately lowered)
Wages growth remains lower than other economies
The board will pay close attention to labour costs and price setting behaviour from firms
Outlook for the global economy is a source of uncertainty (which reads like a ‘get out of jail free card’ for the potential poor forecasts and policy errors ahead)
The Board expects to increase interest rates further over the period ahead
Incoming data to guide size and timing of futures hike

The RBA hiked the overnight cash rate by 25bp to 2.85% - its highest levels since 2013. It’s also their 7^th hike this cycle which now totals 275bp from their 0.1% record low. More rate hikes are coming and the RBA seem content with 25bp going forward, as they’re seemingly happy to fight the inflationary fire with as little water as possible.

We’ll have to wait for the minutes of the meeting to see if the 25 v 50bp debate remained ‘finally balanced’. But skimming over the statement shows there is still a case for them to do so, given they have upgraded their inflation forecast for 2022 and 2023 – and future size and timing of hikes will be decided by incoming data.

Furthermore, RBA’s cash rate remains 50bp below the Fed funds after today’s hike. And that will widen to 125bp differential if the Fed do indeed go for the 75 bike this week. And if the highly anticipated hint that the Fed won’t slow down their pace of tightening, it adds pressure on the Fed to hike more aggressively further out. And that pressure will grow intensely if we see inflation expectations de-anchor and begin to rise.

ASX 200 daily chart:

The ASX 200 has enjoyed today’s decision, and on Melbourne-cup day too. It now trades less than an average-day’s trade from 7,000 which sits right near the 200-day MA. Yesterday’s candle saw strong volume and the OBV (on balance volume) is trending higher with prices after breaking out of its own range. A test of 7,000 seems appealing – and a likely level for a pullback. But as long as global equities do not reverse course, an eventual break above 7,000 is currently favoured.

AUD/USD 1-hour chart:

The Australian dollar has pulled back from its October high, and price action appears to be corrective with some form of bearish wedge. Prices have broken higher thanks to China’s PMI data beating expectations (but still within contraction) before the RBA meeting handed back those gains. Ut with 0.6365 potentially marking an important low, low volatility dips may appeal to bears for a move to 0.6500.

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

Open a Forex.com account, or log in if you’re already a customer.
Search for the pair you want to trade in our award-winning platform.
Choose your position and size, and your stop and limit levels.
Place the trade.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.