Aussie traders, huddle up! The Reserve Bank of Australia is gearing up to make their monetary policy decision on April 4, 5:30 am GMT. Here are a few things you should keep in mind if youre planning on catching pips from this top-tier event.
Why is the RBA decision a big deal?
For the newbies just tuning in, you should know that your fellow forex junkies tend to make a huge fuss over central bank decisions in general because these announcements provide clues on how monetary policy could change. Now monetary policy, which involves adjusting money supply or interest rates, affects demand for a particular currency and therefore its value.
But even if the central bank doesnt make an actual change in interest rates or asset purchases during their monetary policy announcement, traders take a closer look at their accompanying statement or pay attention to the press conference to see if policymakers are shifting their stance or are about to announce big changes next time.
What happened last time?
Now the RBA merely sat on its hands during their March policy statement, with RBA Governor Philip Lowe citing that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
He also mentioned that the domestic economy is A-okay as it carries on with the transition away from mining-led growth, adding that low interest rates and the Aussies depreciation have helped support export activity and non-mining business investment. As for the global economy, Lowe also sounded optimistic in saying that rising commodity prices have been good for the Land Down Under but that there could still be some risks from China.
The Aussie had a bullish reaction to this announcement as it affirmed that the RBA isnt keen on cutting interest rates anytime soon. Aussie bulls also charged on the lack of jawboning from RBA head Lowe and the slight pickup in rate hike speculations from 29.9% to 33.3% before the end of this year.
Whats expected this time?
This week, the RBA is still expected to keep interest rates unchanged at 1.50% while maintaining most of its relatively upbeat assessment of the economy. However, a quick look at my latest Economic Snapshot for Australia reveals that trade activity hit a few roadblocks in the past few months while household income isnt able to keep up with the rise in consumer credit.
To top it off, retail sales turned out weaker than expected with a 0.1% dip in February, taking annual retailing growth down to its lowest level since 2013. Analysts have pointed out that this was likely due to subdued wage growth unable to stay in pace with the rise in price levels, dampening consumer purchasing power.
Another cause for concern are prevailing housing market risks, with mortgages and borrowing activity accelerating in the past few months on low interest rates and speculation even while household income remains mostly flat. Although this could increase the risk of a property bubble, it does give the RBA one more reason to keep interest rates on hold instead of cutting.