RBA Governor Says No Rate Hike Talks – AUD/USD Slides as Rate Hike Talk Cools

RBA Press Conference

On Tuesday, September 24, RBA Governor Michele Bullock held the RBA press conference. Highlights from the press conference included,

• Inflation remains above target and is proving to be sticky.
• Progress in bringing inflation to target has slowed.
• Labor market conditions have eased but remain tight.
• Employment continues to grow, and the rate of layoffs remains low, while job vacancies are elevated.
• Goods inflation has moderated, but services inflation remains elevated.
• The pace of growth in advertised rents has eased a bit.
• Weaker than expected momentum in H1 2024 suggests there is some risk that consumption could remain more subdued than expected.
• The Board needs confidence that inflation is moving towards the target before making any moves.
• We didn’t explicitly discuss an interest rate rise in this meeting, instead, we discussed changes since August.
• We still think we are on the path to return inflation to target without an increase in the unemployment rate.
• The Monthly CPI Indicator will be important as it captures some services data
• It may be that the headline inflation rate could come within the target range, but it may not reflect underlying inflation.
• Other economies have seen disinflation more advanced than us.
• We didn’t go as high, and we haven’t seen the same deterioration in labor markets as they have.
• We expect the demand for services to come back more in line with the supply for those services.
• A broader escalation in the Middle East could affect energy costs and transport prices, which may impact the Australian economy.
• The Board did discuss whether or not the messaging should change. Having said that, the message from the Board is that it does not see interest rate cuts.
• We judge that we are restrictive enough but would change the strategy if inflation remains elevated or rises.

RBA Rate Statement Flags Persistent Inflation

Earlier in the Tuesday session, the RBA kept the Cash Rate steady at 4.35%. However, the Rate Statement flagged that inflation remains above target and continues to be persistent.

Key takeaways from the RBA Rate Statement included,

• Inflation has fallen substantially since the peak in 2022 but remains above the midpoint of the 2-3% target range.
• Inflation is expected to temporarily decline in July, but forecasts indicate it will not return sustainably to target until 2026.
• Declines in real disposable incomes and the effects of restrictive financial conditions continue to weigh on consumption.
• However, growth in aggregate consumer demand has shown resilience.
• Broader indicators suggest labor market conditions remain tight.
• Wage pressures have eased somewhat but labor productivity remains at 2016 levels, despite the pickup over the past year.
• A sharp deterioration in labor market conditions could affect expectations of a pickup in household consumption growth.
• Underlying inflation remains too high, requiring the Board to remain vigilant to upside inflation risks.
• The Board is not ruling anything out and will continue to rely on data and ongoing assessment of risks to guide its decisions.
• Focal points will include developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labor market.

Expert Views on the RBA Rate Statement

David Scutt, Market Analyst at Stone X, commented on the RBA Rate Statement, stating,

“The way I see it, until the RBA sees two consecutive quarterly CPI reports with trimmed mean sub-0.8% (which means Jan 2025 at the earliest), it will only be a sharp rise in unemployment or global crisis that will see it cut rates this year.”

AUD/USD Reaction to the RBA Statements and Press Conference

Before the RBA Rate Statement and subsequent press conference, the AUD/USD dipped to a low of $0.68256 before climbing to a pre-statement high of $0.68552.

Following the RBA Rate Statement, the AUD/USD rallied from $0.68478 to a pre-press conference high of $0.68678.

In response to the RBA press conference, the AUD/USD tumbled from $0.68691 to a low of $0.68230. The AUD/USD responded to RBA Governor Bullock, who said there were no discussions about rate hikes.

On Tuesday, the AUD/USD was down 0.21% to $0.68231.