Australia's central bank (RBA) confirmed the end of its Quantitative Easing (QE) program in the near future, but gave no signal of a rate hike.
Australian dollar continued its rebound by strengthening around 0.3 percent to the range of 0.7090s versus the US dollar in Asian trading session (1/February). The announcement of the results of the meeting of the Australian central bank (RBA) confirmed the end of the Quantitative Easing (QE) program in the near future, but did not signal the interest rate hike that market participants were expecting.
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| AUD/USD Daily chart via TradingView |
The RBA this morning kept interest rates unchanged at 0.1 percent, while stating that the Quantitative Easing program will end sooner in its entirety on February 10. The Australian monetary authority said it would monitor salary growth and other developments related to inflation before raising interest rates.
The RBA assesses that aggregate salary growth is now only rising back to the pre-pandemic trend, so it is not sufficient to maintain the targeted inflation rate in the long term. Despite Australia's higher-than-expected inflation rate over the past few months, the RBA still expects the annual inflation rate to fall again to around 2.75 percent by the end of this year and throughout 2023.
The RBA's stance was disappointing for some market players. Some analysts think the Aussie is at risk of weakening in the short term, although it is likely to strengthen again in the future if the RBA is willing to discuss a "rate hike".
"A rise in the RBA rate in May is not factored in in our view (although it still accounts for half of the current AUD rate -ed)," said Joseph Capurso, chief international economist at Commonwealth Bank of Australia. QE and the start of a rate hike in March, a view we agree with.(But) the bottom line is the RBA is dovish compared to the US FOMC, and the divergent outlook for this policy could weigh a bit on AUD/USD in the near term.”
Jane Foley, Rabobank's head of FX strategy, also argues, "There is a huge risk that Governor Lowe will shrug off market expectations of a progressive rate hike this year. While this could see AUD/USD weaken in the near term, we expect AUD/USD to recover to levels 0.74 towards the end of the year as policy tightening from the RBA becomes clearer in focus.”
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