RBA Keeps Rates Steady, Australian Dollar Drops

July 04, 2023 12:30

The Reserve Bank of Australia (RBA) left interest rates steady in an effort to reassess the situation. The RBA’s policymakers suggested that inflation has passed its peak. The Australian dollar lost ground against the US dollar but not so much as it was anticipated as some investors and traders are convinced that Australia’s central bank will hike again in August.

 Market activity will be muted today as the US celebrates its Independence Day, while the Nonfarm Payrolls report on Friday will be one of the most important data releases this week.

RBA Interest Rate Decision

The RBA’s board decided to leave its official cash rate unchanged at 4.10%, although half the economists polled by Reuters had forecast a 25 basis points hike. RBA governor Philip Lowe said that “inflation is still too high and will remain so for some time yet. Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”

Economists speaking to CNBC said that “the RBA’s decision to keep rates on hold today was in some parts based on reasons like the ones that prompted a pause in April — to assess the impact of a cumulative 400bp or rate hikes over the past fourteen months.”

ISM Manufacturing PMI June 2023

The Institute for Supply Management (ISM) PMI survey shows the US Manufacturing sector contracted last month, dropping from 46.9 in May to 46.0 in June. According to the ISM’s report, “this indicates a seventh month of contraction after a 30-month period of expansion.”

ISM’s analysts noted that “demand remains weak, production is slowing due to lack of work, and suppliers have capacity. There are signs of more employment reduction actions in the near term. Seventy-one percent of manufacturing gross domestic product (GDP) contracted in June, down from 76 percent in May.”

Bundesbank President: More tightening Likely On The Way

The Bundesbank’s head and ECB policymaker Joachim Nagel told reporters that consumer price inflation doesn’t retreat the way the ECB’s board would like it to. Nagel noted that he is confident a hard landing can be avoided but added that monetary policy signals are clearly pointing in the direction of further tightening.  

The ECB’s policymaker stressed that the euro systems balance sheet should be significantly reduced in coming years. It should be noted that the ECB’s head Christine Lagarde said September’s board meeting will be data dependent.  

Japanese High Inflation Is Here To Stay?

While the Bank of Japan (BoJ) says that above-target inflation figures are transitory, local firms seem to disagree. The BOJ June Tankan Corporate Price Expectations survey showed companies expecting consumer prices to rise an annual 2.2% 3 years from now vs +2.3% in the previous survey.

Japanese firms expect consumer prices to rise 2.6% a year from now versus 2.8% forecast in the previous survey. The BoJ’s inflation target remains at 2% on an annualised basis.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.